3. The graph below shows the effects of hurricanes Charley, Frances, and Jeanne

Question

3. The graph below shows the effects of hurricanes Charley, Frances, and Jeanne on the price and number of boxes of Florida oranges bought and sold per year. Consider the linear demand curve for oranges in the graph. S2004-5 S2003-4 3.49 2.35F-Fr- 150 242 Boxes per year (millions) (a). What is the demand function? (b). What is the elasticity of demand at a price of $2.35 per box? (c). What is the elasticity of demand at a price of $3.49 per box? (d). At what price will the total expenditure on oranges be largest?

Explanation / Answer

a)

Demand function, (D) refers to the quantity of goods demanded, per given price.

b)

At P = $2.35

Elasticity = (change in Q / Change in P) (P/Q)

Elasticity = (150-242 / 3.49-2.35) (2.35/242)

Elasticity = -0.784

c)

At P = $3.49

Elasticity = (change in Q / Change in P) (P/Q)

Elasticity = (150-242 / 3.49-2.35) (3.49/150)

Elasticity = -1.878

d)

TR is largest at P = $2.35 because demand is inelastic at this point and price.

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