Problem -
US winter wheat production increased dramatically in 1999 after a bumper harvest. The supply curve shifted rightward; as a result, the price decreased and the quantity demanded increased (a movement along the demand curve). The accompanying table describes what happened to prices and the quantity of wheat demanded.
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1998
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1999
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Quantity Demanded (bushels)
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1.74 Billion
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1.9 Billion
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(Average Price (per bushel)
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$3.70
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$2.72
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Using the chart, solve the following questions:
a) Using the midpoint method, calculate the price elasticity of demand for winter wheat.
b) What is the total revenue for US wheat farmers in 1998 and 1999?
c) Did the bumper harvest increase or decrease the total revenue for American wheat farmers? How could you have predicted this from your answer to part a?