13. Application: Demand elasticity and agriculture Consider the market for soybe

Question

13. 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 new more crops with the same resources Show the effect this shock has on the market for soybeans by shifting the demand curve, supply Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if y to its original position, just drag it a little farther soybeans by shifting the demand curve, supply curve, or both. curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back 30 24 Supply 18 Supply 12 nd 12 18 24 30 QUANTITY (Millions of bushels)

Explanation / Answer

There is rightward shift in supply curve because of technology improvement.

Suppose that the new equilibrium price is 9

Then Q2=21

Q1=15

P1=15

P2=9

Midpoint method = absolute value / average value

Absolute V= | 21- 15 | / {(21+15)/2} = 7 / 18

Average V = |9-15| / { ( 9 + 15)/2} = 6/12 = ½

E = (7/18)/(1/2) = 7/18 X 2 = 7/9

The revenue is higher before technology improvement.

Using the midpoint method , the price elasticity of demand between the prices of $15 and $9 per bushel is 7/9, which means demand is elastic between these two point . therefore, you would tell the farmer that his claim is wrong because total revenue will decrease as a result of technology improvement.

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