Question

What do you suppose were the likely short-run adjustments to removal of the cotton subsidy by Egyptian farmers who continued to devote all of their lands to agricultural crops?

Short answer

The supply price velocity is calculated based on the immediate proportional volume.

Step-by-step solution

Given :

To calculates the short-run adjustments

Step 2:

The price elasticity of the supply can be calculated by the change in the price and quantity of cotton supplied in response to the abolition of Egyptian cotton subsidies.

$E_{\mathrm{r}}=\frac{\text{change in}Q}{\text{sum of quantities}/2}÷\frac{\text{change in}P}{\text{sum of prices}/2}$

This value ofsupply price elasticity is calculated based on the immediateproportional volume response to therate of change incotton price caused by theabolition ofsubsidies. Therefore,$\$1.89$ is theshort-term price elasticity of cotton supply in Egypt.