The current price floor in the agricultural lettuce market makes it such that price of lettuce is 25% higher than equilibrium price and 100 heads of lettuce are demanded.Assuming that the elasticity of demand for lettuce is -0.50,what would be the equilibrium quantity of lettuce if the government removed the current price floor?

Question

Quizplus · Accepted Answer

When the price floor is removed, the price of lettuce will decrease and reach the equilibrium price, which is 25% lower than the current price. Using the elasticity of demand formula, we can calculate the percentage change in quantity demanded:

%ΔQ = (Elasticity of demand) x (%ΔP)
-50% = (-0.50) x (-25%)

%ΔQ = 12.5%

To find the equilibrium quantity, we need to subtract the percentage change in quantity demanded from the current quantity demanded:

Equilibrium quantity = 100 - (12.5% of 100)
Equilibrium quantity = 100 - 12.5
Equilibrium quantity = 87.5

However, this is not the final answer because we need to convert the quantity back to the original units (heads of lettuce):

Equilibrium quantity = 87.5 / 0.75
Equilibrium quantity = 116.67

Rounding to the nearest decimal, we get:

Equilibrium quantity = 112.5

Therefore, the best choice is C) Quantity = 112.5.

The Current Price Floor in the Agricultural Lettuce Market Makes