You are a soybean farmer in Somewheregreat, Texas. You know that the own price elasticity of...
You are a soybean farmer in Somewheregreat, Texas. You know that the own price elasticity of supply is 0.25 and own price elasticity of demand is -0.50. Last year the U.S. had a total demand of 4.3 billion bushels and produced 4.4 billion bushels of soybeans. Due to tariffs imposed by trading partners, the price of soybeans has dropped 20%. Find the new quantity demanded and the new quantity supplied for soybeans. Are soybean farmers better off? Show your work.
Homework Answers
Elasticity of demand = -0.50
Elasticity of supply = 0.25
Quantity demanded = 4.3 billion
Quantity supplied = 4.4 billion
Price decreases by 20%
New quantity demanded: -0.50 = D/20, D = 20*0.5 = 10%
New quantity demanded decreases by 10% to 4.3 billion - 430000 = 3870000
New quantity supplied: 0.25 = S/10%, S= 10*0.25 = 2.5%
New quantity supplied increases by 2.5% to 4.4 billion+110000 = 4510000
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