After the devastating typhoon Haiyan in the Philippines, the government and donor agencies embarked on rehabilitating rice production to avoid hunger and starvation. As a result, Philippines experienced a rice bumper harvest which led to the equilibrium price to decrease to AUD 1.50 per kilogram.To reduce poverty, the government decided to increase the price of rice to AUD 2.00 per kg. Suppose the figure below represents rice production by Jane a farmer in rural Philippines, answer the questions below.

i.Examine the effect of government price legislation on Jane a farmer in rural Philippines (3 Marks)

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ii.Calculate the price elasticity of demand using the midpoint formula for rice. (1 Mark)

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iii.What is the price elasticity of demand for rice? Based on your answer, is rice a necessity? Explain your answer. (3 Marks)

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