Question

QUESTIONS The average price of wheat per metric ton in 2012 was $30575. Demand in millions of metric tons) in 2012 was 672. The average price of wheat per metric ton in 2013 was $291.56, while the demand was 700. Calculate the elasticity and classify as elastic or inelastic -0.04 elastic -0.9, elastic -0.9; inelastic -3.84, elastic -0.04 inelastic

Answer 1

Answer: -0.9 ; inelastic

Explanation:  

Given:

The average price of wheat per metric ton in 2012 = $305.75

Demand (in millions of metric tons) in 2012 = 672

The average price of wheat per metric ton in 2013 =  $291.56

Demand (in millions of metric tons) in 2013 = 700

We will compute the elasticity using the following formula:

ε = $\frac{\frac{(Q_{2} - Q_{1})}{\frac{(Q_{2} +Q_{1})}{2}}}{\frac{(P_{2} - P_{1})}{\frac{(P_{2} +P_{1})}{2}}}$

ε = $\frac{\Delta Q}{\Delta P}$

Now , we'll first compute  $\Delta Q$

i.e.  $\frac{\Delta Q}{\Delta P}$ = $\frac{(700 - 672)}{\frac{(700 +672)}{2}}$

$\Delta Q$ = 0.04081

Similarly for  $\Delta P$

i.e. $\Delta P$ = $\frac{(291.56 - 305.75)}{\frac{(261.56 +305.75)}{2}}$

$\Delta P$ = -0.0475

ε = $\frac{0.04081}{-0.0475}$

ε = -0.859 $\simeq$ -0.9

$\because$ we know that ;

If, ε > 1 ⇒ Elastic

ε < 1 ⇒ Inelastic

ε = 1 ⇒ unit elastic

$\because$ Here , ε = -0.859 $\simeq$ -0.9

Therefore ε is inelastic.