Question

14. Application: Demand elasticity and agriculture 

Consider the market for apples. The following graph shows the weekly demand for apples and the weekly supply of apples. Suppose a spell of unusually good weather occurs, which enables apple producers to generate more apples per acre of land. 

Show the effect this shock has on the market for apples by shifting the demand curve, supply curve, or both. 

Note: Select and drag cne 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 concerned about the price decrease caused by the spell of good weather because she feels it will lower 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 apples between the prices of $10 and $8 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 spell of good weather .

Confirm your previous conclusion by calculating total revenue in the apple market before and after the spell of good weather, Enter these values in the following table.

Answer 1

Answer:

Good weather = more production= Supply rises from S to S1

Elasticity:

P1 = 10, P2 = 8, Q1 = 25, Q2= 30

Elasticity = [(30 – 25)/(30 + 25)/2] / [(8-10)/(8+10)/2]

= [10/55]/[-4/18]

= -0.82

Price Elasticity is 0.82

Elasticity is < 1 so demand is inelastic.

Her Claim is correct because total revenue will fall as a result of good weather.

	Before Spell of Good wealth	After Spell of Good Wealth
Total Revenue	10 * 25 = 250	8*30 = 240