What is the implied price elasticity of demand for rice when "Production of rice, the country’s staple grain, fell by about 14% last year and prices surged by around 43%"?
Here are some needed assumptions to compute the elasticity.
- Sri Lanka neither imports nor exports rice.
- Farmers sell all rice grown at whatever price clears the market and never build up or drawn down inventories.
- The increase in energy prices has not affected the demand for rice.
- The decrease in income has not affected the demand for rice.
- The shift to organic rice has not affected the demand for rice.
Here are two questions. How would you adjust the elasticity if
- The increase in energy prices or decrease in income decreased the demand for rice?
- The shift to organic rice increased the demand for rice?
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