ECN(10).pdf - 4 Application Demand elasticity and...

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Unformatted text preview: 4. Application: Demand elasticity and agriculture A; Aa #3 Consider the market for soybeans. The monthly demand curve for soybeans is shown as the blue line on the following graph. PRICE [Dollars per bushel] $7.00 ------ )5 Vi. \ — -x 40 50 QUANTITY [Millions of bushels per month] Initially, the supply curve for soybeans is shown by 51 (grey curve). Then a blight occurs that destroys a significant portion of soybean crops. This shifts the supply curve leftward to 52 (orange curve). Calculate total revenue in the soybean market before and after the blight. Enter these values in the following table. Before Blight After Blight Total Revenue (Millions of Dollars) $200 V/ $280 J Explanation: Close A Before the blight, equilibrium in this market occurred at the intersection of the demand curve and 51. The equilibrium price was $4.00 per bushel, and the equilibrium quantity was 50 million bushels. After the blight, equilibrium in the market occurred at the intersection of the demand curve and 52. The equilibrium price was $7.00 per bushel, and the equilibrium quantity was 40 million bushels. Total revenue in the market for soybeans before the blight was $4.00 per bushel x 50 million bushels per month = $200 million per month. Total revenue after the blight was $7.00 per bushel x 40 million bushels per month = $280 million per month. Therefore, the blight caused total revenue to increase by $80 million per month. ...
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