The price elasticity of demand for a certain agricultural product is constant (over the relevant range of prices)and equal to -2.The supply elasticity for this product is constant and equal to 3.Originally the equilibrium price of this good was $45 per unit.Then it was discovered that consumption of this product was unhealthy.The quantity that would be demanded at any price fell by 100%.The percent change in the long-run equilibrium consumption of this good was
A)-100%.
B)-64%.
C)-20%.
D)-60%.
E)There is not enough information to determine the answer.

Question

Quizplus · Accepted Answer

We can use the formula for the percent change in quantity demanded to calculate the percent change in long-run equilibrium consumption:

% change in quantity demanded = (elasticity of demand) x (% change in price)

Since the price is not changing in this scenario (only the quantity demanded changes due to a shift in preferences), the percent change in price is 0, and we can simplify the formula to:

% change in long-run equilibrium consumption = (elasticity of demand) x (-100%)

Substituting the given elasticity of demand, we get:

% change in long-run equilibrium consumption = (F1F1F1S1F1F1F102) x (-100%)

% change in long-run equilibrium consumption = (1/3) x (-100%)

% change in long-run equilibrium consumption = -33.33%

So the percent change in long-run equilibrium consumption is a decrease of 33.33%, which is equivalent to a decrease of 60% (since the original consumption level is decreasing by 100%). Thus, the best choice is option D.

The Price Elasticity of Demand for a Certain Agricultural Product