Question
11. Application: Demand elasticity and agriculture The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand
11. Application: Demand elasticity and agriculture
The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand for cashews. Suppose a stretch of unseasonably good weather occurs, allowing cashew growers to produce more cashews per hectare.
Show the effect this shock has on the market for cashews 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.
DemandSupply0816243240201612840PRICE (Dollars per ton)QUANTITY (Thousands of tons)DemandSupply
A number of the growers are concerned about the price decrease initiated by the stretch of favorable weather conditions, as they believe it will lead to decreased revenue. Using elasticities, you will be able to determine whether this price change will lead to a rise or fall in total revenue in this market.
Using the midpoint method, the price elasticity of demand for cashews between the price levels of $10 and $8 per ton is , meaning that between these two points, demand is . Thus, you can conclude that the grower's claim is , because total revenue will due to the favorable weather conditions.
Confirm your previous conclusion by calculating total revenue in the cashew market before and after the favorable weather conditions. Enter these values in the following table.
Before Favorable Weather Conditions | After Favorable Weather Conditions | |
---|---|---|
Total Revenue (Thousands of Dollars) |
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