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5. Calculate the arc price elasticity of demand for wheat in the two situations below: The entire market for wheat Old price;
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Answer #1

The Wheat Market

Price elacticity=2.5+2.5252÷3.4+3.22×3.42.5Price elacticity = [2.5 +2.525 2 3.4 +3.21. 3.4 22.5

price elasticity=2.51253.3×3.42.52.5125 price elasticity = 3.3 3.4 2.5

price elasticity=1.035price elasticity = 1.035

The price is relatively elastic

Farmer Brown’s Bread

price elasticity=[28000+350002÷3.4+3.22]×3.42800028000 + 35000 - 3.4 price elasticity = 3.4 +3.2 2 X 28000

price elasticity = 315003.3×3.42800031500 3.4 price elasticity = 3. 3 28000

price elasticity=1.159price elasticity = 1.159

The price is fairly elastic

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