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Friday, October 06, 2006

Microeconomics quiz of the week

From the WSJ's ProfessorJournal.com weekly email blast:
SUMMARY: "Since the Food and Drug Administration's Sept. 14 recommendation that Americans avoid eating bagged raw spinach in the wake of an outbreak of E. coli 0157:H7 bacteria, food companies, restaurants and cooks have been looking at alternatives ranging from Swiss chard and collards to kale and turnip greens.

Many are turning to arugula, an understudy in the salad patch that suddenly finds itself in a starring role." The article offers a good collection of anecdotes about the increased demand and sales of arugula. One Chicago distributor claims, "The sale of the stuff has gone through the roof." The effect of the increased demand on the vegetable's price: "[One distributor] charges about 15% more for arugula than for spinach but says the new demand hasn't had an appreciable effect of the price."

1.) Is arugula an economic complement or substitute of spinach?

2.) How has the E. coli outbreak in spinach affected the demand for arugula?

3.) Suppose that with the E. coli outbreak, the price of arugula has not changed. What would the absence of a price change imply about the price elasticity of demand or the price elasticity of supply?

Link to original story [sub req'd?]

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