<p>Price elasticity of demand of <span class="math-container">$-0.5$</span> means that if price increases by <span class="math-container">$1\%$</span> demand decreases by <span class="math-container">$0.5\%$</span> (and vice versa in case of decrease).</p>
<p>Consequently, if the equilibrium quantity with floor is <span class="math-container">$100$</span> and the price of lettuce is <span class="math-container">$25\%$</span> that means that eliminating the price flow - which will offset the <span class="math-container">$25\%$</span> will increase the quantity demanded by:</p>
<p><span class="math-container">$$0.5\cdot25\% = 12.5\%$$</span></p>
<p><span class="math-container">$12.5\%$</span> increase from <span class="math-container">$100$</span> is <span class="math-container">$112.5$</span> so that will be new quantity.</p>
<p>Regarding the price you don't mention what the price at the price floor originally was but it should decrease by <span class="math-container">$25\%$</span> from its original value.</p>

CC BY-SA 4.0
2021-02-08T22:37:23.457Z
2021-02-08T22:37:23.457Z
1muflon1
<p>I'm currently taking undergrad microeconomics and came across the following question:</p>
<p>The current price floor in the agricultural lettuce market makes it such that price of lettuce is 25% higher than equilibrium price and 100 heads of lettuce are demanded. Assuming that the elasticity of demand for lettuce is -0.50, what would be the equilibrium price and quantity of lettuce if the government removed the current price floor?</p>
<p>Here's how I've tried to solve the question: <a href="https://i.sstatic.net/2a4oY.jpg" rel="nofollow noreferrer">https://i.sstatic.net/2a4oY.jpg</a> .</p>
<p>The answer is</p>
<blockquote class="spoiler">
<p> Price = $0.75, Quantity = 112.5.</p>
</blockquote>
<p>but I don't know how to solve that.</p>
<p>Thanks</p>

CC BY-SA 4.0
2021-02-08T22:28:09.883Z
you should add the attempt from that external site to your question in order to make it self contained.
1muflon1
<elasticity><demand>
Homework Question - Price Floor / Elasticity of Demand
songun
# Homework Question - Price Floor / Elasticity of Demand

(Asked by: username_0 on 2021-02-08)

I'm currently taking undergrad microeconomics and came across the following question:

The current price floor in the agricultural lettuce market makes it such that price of lettuce is 25% higher than equilibrium price and 100 heads of lettuce are demanded. Assuming that the elasticity of demand for lettuce is -0.50, what would be the equilibrium price and quantity of lettuce if the government removed the current price floor?

Here's how I've tried to solve the question: <https://i.sstatic.net/2a4oY.jpg> .

The answer is

> Price = $0.75, Quantity = 112.5.

but I don't know how to solve that.

Thanks

**Tags:** elasticity, demand
> **Comments:**
> **username_1**: you should add the attempt from that external site to your question in order to make it self contained.  

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## 1 answers

### Answer by username_1 on 2021-02-08. Score: 1

Price elasticity of demand of $-0.5$ means that if price increases by $1\%$ demand decreases by $0.5\%$ (and vice versa in case of decrease).

Consequently, if the equilibrium quantity with floor is $100$ and the price of lettuce is $25\%$ that means that eliminating the price flow - which will offset the $25\%$ will increase the quantity demanded by:

$$0.5\cdot25\% = 12.5\%$$

$12.5\%$ increase from $100$ is $112.5$ so that will be new quantity.

Regarding the price you don't mention what the price at the price floor originally was but it should decrease by $25\%$ from its original value.


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