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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 5, Problem 9QR
Textbook Problem
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A storm destroys half the fava bean crop. Is this event more likely to hurt fava bean farmers if the demand for fava beans is very elastic or very inelastic? Explain.

To determine
Price elasticity of demand and its effect.

Explanation of Solution

Loss of half of the fava bean crop is more likely to hurt the farmers if the demand for fava beans is very elastic. This is because the destruction of the crop reduces the supply, causing the supply curve to shift leftwards. This increases the price of fava beans...

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