Suppose a bumper wheat crop results in a 40 percent increase in output and sales,while the price elasticity of demand for wheat is about 0.8.Ceteris paribus,prices should
A)Rise by 8 percent.
B)Fall by 8 percent.
C)Rise by 50 percent.
D)Fall by 50 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand is 0.8, meaning a 1% increase in quantity supplied leads to a 0.8% decrease in price. A 40% increase in output would lead to a 32% decrease in price (0.8 * 40%), but since the options are limited, the closest significant drop is 50%.

Suppose a Bumper Wheat Crop Results in a 40 Percent