Based on a story in the New York Times, December 25, 1996


Orange and Grapefruit Crop Should Set Record in Florida

Recovery from a Devastating Freeze is here, But Growers are not Ecstatic

The story reports that: "Seven years after a two-day freeze over the Christmas weekend devastated the Florida citrus crop, growers in the state are expecting their biggest crop ever, in large part because trees planted after that freeze are maturing and bearing fruit."

The story reports that in 1990 there were 79 million citrus trees in Florida, but in 1996 there are about 107 million. Typically, the trees take about 3 years to bear fruit and about 15 years to mature fully.

According to the story, the Florida Department of Citrus is predicting that the crop will be more than 10.4 million tons of oranges, compared with 9.6 million tons last year. There will also be about 2.7 million tons of grapefruit this year. (The amount of grapefruit last year was not recorded.) The estimated "value" of the orange crop this year is expected to $825 million, down from $941 million last year.

The estimated value of the grapefruit crop is expected to increase to $131 million this year from $103 million last year.


Questions

By what percentage did the quantity of oranges produced increase?

By what percentage did the price of oranges produced decrease? (Use the information that you have about the value of the crop and the change in the size of the crop to calculate this.)

The price elasticity of demand for a good is defined to be the percentage increase in output divided by the percentage increase in price as one moves along the demand curve. If the only source of oranges available to the market were Florida, what would you estimate the price elasticity of demand to be?

Can you think of reasons why this might be an overestimate of the elasticity of demand? (Hint: What if there are other sources of oranges?)