Suppose the price elasticity of demand for oranges is -1.8.If a fall frost destroys one-third of the nation's orange crop, how will that affect total expenditures on oranges, all other things unchanged?
A) total expenditures will rise
B) total expenditures will fall
C) total expenditures will remain unchanged
D) not enough information is given to answer the question

Question

Quizplus · Accepted Answer

With an elasticity of -1.8, we know that a 1% decrease in quantity demanded will result in a 1.8% increase in price to offset the revenue loss. Since one-third of the orange crop is destroyed, the quantity of oranges supplied will decrease, causing an increase in price. This, in turn, will lead to a fall in total expenditures on oranges as the decrease in quantity demanded will outweigh the price increase.

Suppose the Price Elasticity of Demand for Oranges Is -1