Question 14

14. Application: Demand elasticity and agriculture The following graph illustrates the market for pistachios. It plots the monthly supply of pistachios and the monthly demand for pistachios. Suppose new gathering technology is invented, allowing growers to produce more crops using the same amount of resources. Show the effect this shock has on the market for pistachios 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. PRICE (Dollars per ton) 40 24 18 80 0 8 16 24 Demand QUANTITY (Thousands of tons) Demand Supply Supply EE 82 40 Several growers are happy with this advancement in technology because now they can sell more crops, which they believe will lead to increases in 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 pistachios between the price levels of $30 and $12 per ton is between these two points, demand is Thus, you can conclude that the grower's claim is due to the technological improvement. meaning that because total revenue will