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 new farming technology is developed that enables growers to produce more crops with the same resources. Show the effect this shock has on the market for soybeans 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. 30 _0_ Demand 24 A 5 _n_ T: 1 E n 13 5\"PP\"' 213 EL E E T: S Q 12 2 u.| 9 E \\ emand 6 0 | 0 a 12 18 24 30 QUANTITY (Millions of bushels) One of the growers is excited by this advancement because now she can sell more crops, which she believes will increase 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 $15 and $9 per bushel is 0.67 V , which means demand is inelastic Y between these two points. Therefore, you would tell the grower that her claim is incorrect Y , because total revenue will decrease T as a result of the technological advancement. Conrm your previous conclusion by calculating total revenue in the soybean market before and after the technological advancement. Enter these values in the following table. Before Technological Advancement Alter Technological Advancement Total Revenue (Millions of Dollars) E \\:l 9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Big Winner Hotel and Casino in Las Vegas, Nevada. To help the hotel management better understand the market, an economist identied three primary factors that affect the demand for rooms each night. 111ese demand factors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool. Demand Factor Initial Value Average American household income $40,000 per year Roundtrip airfare from Los Angeles (LAX) to Las Vegas (LAS) $100 per roundtrip Room rate at the Lucky Hotel and Casino, which is near the Big Winner $200 per night Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white eld, the graph and any corresponding amounts in eadt grey eld will change accordingly. Graph Input Tool Market for Blg Winner's Hotel Rooms I Price ( Dollars per room) LIB l'ltl geman ed 35\" (Ho tel rooms per night) snu 450 am) 350 and 250 Demand Factors Avera e Income o ars algae from LAX to (Dollars per round trrp ) mi) 150 FRJCE (Dollars per room) 1m) sn u an we 150 201i 25m 30\" 35" 40" 450 and Room Rate at Lu QUANTITY lHOT'El rooms) ( Dollars Der night)!\"y For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $150 per room per night. If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Big Winner rises V from rooms per night to rooms per night. 111ereforer the income elastidty of demand is positive 7 , meaning that hotel rooms at the Big Winner are a normal good V . If the price of a room at the Lucky were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Big Winner 7 from \\:| rooms per nightto l: rooms per night. Because the crossprice elasticity of demand is V , hotel rooms at the Big Winner and hotel rooms at the Lucky are V . Big Winner is debating decreasing the price of its rooms to $125 per night. Under the initial demand conditions, you can see that this would cause its total revenue to V . Decreasing the pnce will always have this effect on revenue when Big tMnner is operating on the V portion of its demand curve