9. Application: Demand elasticity and agriculture Consider the market for wheat.

Question

9. Application: Demand elasticity and agriculture Consider the market for wheat. The folfowing graph shows the weekiy demand for wheat and the weekty supply of wheat. Suppose a blight occurs destroys a significant portion of wheat crops Show the effect this shock has on the market for wheat by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position, Curves will snap into position, so if you try to its oniginal position, just drag it a little farther, 30 Demand 24 Supply 12 12 QUANTIT of bushels)

Explanation / Answer

Answer:-

Using the midpoint method, the price elasticity of demand for wheat between $15 and $18 per bushel is………………which mean demand is ……………..between these two points. Therefore we would tell the grower that her claim is ………………… because total revenue will ………………….as a result of the blight

Correct Answer:- Answer:- the price elasticity of demand for wheat between $15 and $18 per bushel = -1.22

demand is:- Elastic

we would tell the grower that her claim :- Wrong

because total revenue will:- Fall

Reason:- Midpoint elasticity of demand =[(Q2-Q1)/(Q2+Q1)/2]/[(P2-P1)/(P2+P1)/2]

Price elasticity of demand between $15 and $18

P1= 15   Q1=15

P2=18   Q2= 12

[(Q2-Q1)/(Q2+Q1)/2]= [(12-15)/(12+15)/2]=-0.22

(P2-P1)/(P2+P1)/2= [(18-15)/(18+15)/2]=0.18

Elasticity of demand = -0.22/0.18 = -1.22

Revenue at $15=$15*15=$225

Revenue at $18 =$18*12=$216

Answer:-

Total Revenue before:- $15*15=$225

Total Revenue after= =$18*12=$216

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