Assume the price elasticity of demand for corn has been estimated to be 2.33. Flash floods destroy 10% of the nation's crop of corn. Which of the following 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

The price elasticity of demand for corn is 2.33, which means that a 1% increase in the price of corn will lead to a 2.33% decrease in the quantity of corn demanded. Flash floods have destroyed 10% of the nation's crop of corn, which means that the supply of corn has decreased by 10%. This will lead to an increase in the price of corn, which will in turn lead to a decrease in the quantity of corn demanded. The decrease in the quantity of corn demanded will be greater than the decrease in the supply of corn, which means that total expenditures on corn will fall.

Assume the Price Elasticity of Demand for Corn Has Been