Assume that the price elasticity of demand for corn has been estimated to be 2.33.Flash floods destroy 10% of Canada's crop of corn.Which statement BEST describes how this will affect total expenditures on corn,all other things equal?
A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.

Question

Quizplus · Accepted Answer

A 10% decrease in supply due to flash floods will lead to an increase in the price of corn. As the price of corn rises, the quantity demanded will fall due to the price elasticity of demand. Since the elasticity of demand for corn is 2.33, a 10% increase in price will lead to a 23.3% decrease in quantity demanded. As a result, total expenditures on corn will fall.

Assume That the Price Elasticity of Demand for Corn Has