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Consider the market for corn and suppose that this market is initially in equilibrium. This equilibrium is the point at which the price for corn is $1 per unit and the quantity of corn is 1,000,000 units sold. The government is considering a policy that would decrease the amount of corn that farmers can supply to the market at every price (that is, the policy is an event that would shift the supply curve to the left). They estimate that, in the new equilibrium after this policy change, corn will sell for $2 per unit with 400,000 units of corn sold. The only objective of the government is to make sure that the total corn revenue earned by farmers in equilibrium is as large as possible.

a) True or false: The government should go ahead with the new policy as it would increase total revenue in the corn market.

A) True

B) False

b) The price elasticity of demand for corn between prices $1 and $2 (rounded to 2 decimal places) is equal to





c) The demand for corn between a price of $1 and $2 is

A) inelastic

B) elasric

C) Unit elastic


which is consistent with the fact that total revenue in the corn market would (increase, decrease, stay the same) as the price of corn increases from $1 to $2.

Circe One from the yellow

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