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 spell of unusually good weather occurs, which enables soybean producers to generate more soybeans per acre of land.
Show the effect this shock has on the market for soybeans by shifting the demand curve, supply curve, or both.
One of the growers is concerned about the price decrease caused by the spell of good weather because he feels it will lower the 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 $10 and $6 per bushel is.........., which means that the demand is............between these two points. Therefore you would tell the grower that his claim is...........because total revenue will............as a result of the spell of good weather.
Confirm your conclusion by calculating total revenue in the soybean market before and after the spell of good weather. Enter these values in the following table.
Before the spell of good weather After the spell of good weather
Total Revenue(millions of dollars)
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