Friday, May 13, 2022

Why Mobs Are Torching Sri Lanka Politicians’ Homes

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.

  1. Sri Lanka neither imports nor exports rice.
  2. Farmers sell all rice grown at whatever price clears the market and never build up or drawn down inventories.
  3. The increase in energy prices has not affected the demand for rice.
  4. The decrease in income has not affected the demand for rice.
  5. The shift to organic rice has not affected the demand for rice.
Here are two questions. How would you adjust the elasticity if

  1. The increase in energy prices or decrease in income decreased the demand for rice?
  2. The shift to organic rice increased the demand for rice?

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