Question

one of the growers is excited by the price increase caused by the blight because she believes it will increase revenue in this market. as an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. using the midpoint method, the price elasticity of demand for apples between the prices of $15 and $18 per bushel is 0.61, which means demand is as a result of the blight.

Explanation:

Step1: Recall elasticity - revenue relationship

If price elasticity of demand $E_d< 1$ (in - elastic demand), an increase in price leads to an increase in total revenue. If $E_d > 1$ (elastic demand), an increase in price leads to a decrease in total revenue. If $E_d=1$ (unit - elastic demand), a change in price does not affect total revenue.

Step2: Analyze given elasticity value

The price elasticity of demand between the prices of $15 and $18 per bushel is 0.61. Since $0.61<1$, demand is in - elastic in this price range.

Step3: Determine revenue change

When demand is in - elastic, an increase in price (from $15 to $18 caused by the blight) will lead to an increase in total revenue.

Answer:

The grower's claim is correct because the price elasticity of demand between $15 and $18 per bushel is 0.61 (in - elastic), and an increase in price in the in - elastic range of the demand curve leads to an increase in total revenue.