1.This is clearly a situation where you'd want to know the elasticity of fruit and vegetable demand: If people respond a lot to mall changes in price, then government-funded fruit and vegetable coupons could make poorer Americans a lot healthier, which might save taxpayers money if they don't have to pay for expensive medical treatments for unhealthy eaters. There are a lot of links in this chain of reasoning-all of which are covered in more advanced economics courses-but the first link is whether people actually have elastic demand for fruit and vegetables. The USDA's Economic Re earch Service employs economists to answer these sorts of questions, and a recent report contained the following estimated elasticities (Source: Diansheng Dong and Biing-Hwan Lin. 2009. "Fruit and Vegetable Consumption by Low-Income Americans: Would a Price R eduction Make a Difference?" In Economic Research Report 70, USDA).

86 • PART 1 • Supply and Demand Fruit Apple Banana Grapefruit Grapes Orange Elasticity of Demand -0.16 -0.42 -1.02 -0.91 -1.14

a. Based on these demand elasticity estimates, which fruit is most inelastically demanded?

Which is most elastically demanded?

b. For which of these fruits would a 10% drop in price cause an increase in total revenue from the sale of that fruit?

c. If the government could only offer "1 0%

off' coupons for three of these fruits, and it wanted to have the biggest possible effect on quantity demanded, which three fruits should get the coupons?

d. Overall, the authors found that for the average fruit, the elasticity of demand was about -0.5.

Is the demand for fruit elastic or inelastic?