Question

 14. Application: Demand elasticity and agriculture

 Consider the market for soybeans. The following graph shows the weekly demand for soybeans and the weekly supply of soybeans. Suppose a blight occurs that destroys a significant portion of soybean crops.

 Show the effect this shock has on the market for soybeans 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 move a curve and it snaps back to its original position, just drag it a little farther.

 One of the growers is excited by the price increase caused by the blight because she believes it will increase revenue in this market. As an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market.

 Using the midpoint method, the price elasticity of demand for soybeans between the prices of $15 and $21 per bushel is _______ , which means demand is _______  between these two points. Therefore, you would tell the grower that her claim is _______ , because total revenue will_______  as a result of the blight.

Confirm your previous conclusion by calculating total revenue in the soybean market before and after the blight. Enter these values in the following

Answer 1

Elasticity can be calculated using the following formula

When price, P1 = $ 15, Quantity, Q1 = 15

When price,P2 = $ 21, Quantity, Q2 = 9

Price Elasticity of demand for soybeans between price $ 15 and $ 21 per bushel is -1.5, which means the demand is elastic between these two points. Therefore, you would tell the grower that her claim is wrong, because her total revenue will decline as a result of blight.

Total Revenue

Before blight = P1Q1 = $ 15 * 15 = $ 225

After blight = P2Q2 = $ 21*9 = $ 189

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