Question

The price of Shoes in Japan is Yen 1000. When exchange rate is Yen=$1/100, the Quantity of Imports of Shoes from Japan is 150000. Today, the exchange rate is Yen=$1/200, and the Quantity of Imports of Shoes from Japan has risen to 200000 What is the elasticity of imports? (Use the situation with Yen=$1/100 as the starting point)

Answer 1

Answer:

- 0.67 (Absolute value = 0.67)

Explanation:

% Change in demand for imports:

= (200,000 ÷ 150,000) - 1

= 1.3333 - 1

= 0.3333

= 33%

% Change in price of imports:

= [(1/200) ÷ (1/100)] - 1

= (100 ÷ 200) - 1

= 0.5 - 1

= - 0.5

= - 50%

Elasticity of imports:

= % Change in demand for imports ÷ % Change in price of imports (exchange rate)

= 33% ÷ (- 50%)

= - 0.67 (Absolute value = 0.67)