Coffee and tea are substitutes. Suppose a typhoon destroys half the tea trees of a country, but does not impact the supply of coffee since coffee is imported from a foreign country. [ What happens to the price and quantity of tea? Use a labeled diagram to answer the question. b. a. C. Suppose the price of tea rises from RMB 200 Yuan per pound to RMB300 Yuan per pound, and consumers' purchases of tea reduced from 100,000 pounds to 80,000 pounds. Calculate the price elasticity of demand of tea (using the midpoint method). Does consumers' total expenditure on tea increase or decrease? How is this change related to the nature of the price elasticity of demand of tea?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Question 4
Coffee and tea are substitutes. Suppose a typhoon destroys half the tea trees of a
country, but does not impact the supply of coffee since coffee is imported from a
foreign country.
a.
What happens to the price and quantity of tea? Use a labeled diagram
to answer the question.
b.
C.
d.
e.
3
f.
Suppose the price of tea rises from RMB 200 Yuan per pound to
RMB300 Yuan per pound, and consumers' purchases of tea reduced from
100,000 pounds to 80,000 pounds. Calculate the price elasticity of demand of tea
(using the midpoint method).
Does consumers' total expenditure on tea increase or decrease? How is
this change related to the nature of the price elasticity of demand of tea?
How do you expect consumers' total expenditure on tea to change over
a longer period (if the production capacity of tea could not be restored)? Why?
What happens to the price and quantity of coffee? Use a labeled
diagram to answer the question.
Suppose the quantity of coffee rises from 5,000 pounds to 6,000
pounds. Calculate the cross-price elasticity of demand for coffee (using the
midpoint method).
Can you infer whether consumers' expenditure on coffee increases or
decreases with the information you have so far? Is this change related to the
nature of the price elasticity of demand of coffee?
Transcribed Image Text:Question 4 Coffee and tea are substitutes. Suppose a typhoon destroys half the tea trees of a country, but does not impact the supply of coffee since coffee is imported from a foreign country. a. What happens to the price and quantity of tea? Use a labeled diagram to answer the question. b. C. d. e. 3 f. Suppose the price of tea rises from RMB 200 Yuan per pound to RMB300 Yuan per pound, and consumers' purchases of tea reduced from 100,000 pounds to 80,000 pounds. Calculate the price elasticity of demand of tea (using the midpoint method). Does consumers' total expenditure on tea increase or decrease? How is this change related to the nature of the price elasticity of demand of tea? How do you expect consumers' total expenditure on tea to change over a longer period (if the production capacity of tea could not be restored)? Why? What happens to the price and quantity of coffee? Use a labeled diagram to answer the question. Suppose the quantity of coffee rises from 5,000 pounds to 6,000 pounds. Calculate the cross-price elasticity of demand for coffee (using the midpoint method). Can you infer whether consumers' expenditure on coffee increases or decreases with the information you have so far? Is this change related to the nature of the price elasticity of demand of coffee?
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