• Assume the market demand for wheat may be written as

Q = 45 - 2p + 0.3Y + 1 pb

where Y refers to income, p is the price of wheat, and pb refers to the price of barley. Assuming that wheat and barley both sell for $1, and income is $20, calculate the cross-price elasticity and income elasticity for wheat.

1. ) Let the market demand for rye bread be given by Q = 500 + I – 250Prye + 400Pwheat, where Q is monthly demand in number of loaves, I is average monthly income in dollars, Prye is the price of a loaf of rye bread, and Pwheat is the price of a loaf of wheat bread. If I = $1,000, Prye = $2, and Pwheat = $3, calculate the following (based on 10% changes in denominators):

1. the arc price elasticity of demand for rye bread

2. the arc price elasticity of demand for wheat bread

3. the arc cross-price elasticity of demand for rye bread

2. In the United States, 2007 was a bad year for growing wheat. And as wheat supply decreased, the price of wheat rose dramatically, leading to a lower quantity demanded (a movement along the demand curve). The accompanying table describes what happened to prices and the quantity of wheat demanded. 2006 2007 Quantity demand (bushels) 2.2 billion 2.0 billion Average price (per bushel) $3.42 $4.26 a. Using the midpoint method, calculate the price elasticity of demand for winter wheat. b. What is the total revenue for U.S. wheat farmers in 2006 and 2007? c. Did the bad harvest increase or decrease the total revenue of U.S. wheat farmers? How could you have predicted this from your answer to part a? 3. A recent study determined the following elasticities for Volkswagen Beetles: Price elasticity of demand = 2 Income elasticity of demand = 1.5 The supply of Beetles is elastic. Based on this information, are the following statements true or false? Explain your reasoning. a. A 10% increase in the price of a Beetle will reduce the quantity demanded by 20%. b. An increase in consumer income will increase the price and quantity of Beetles sold. Since price elasticity of demand is greater than 1, total revenue will go down.

In 1998, the total demand for US wheat was Qd = 3244 - 283P and the domestic supply was Qs = 1944 + 207P *both in millions*

At the end of 1998, both Brazil and Indonesia openered their wheat markets to US farmers.

Suppose that these new markets add 200 million bushels to US wheat demand.

1) What will be the free market price of wheat and what quantity will be produced and sold by the US farmers?

2) Use the demand curve to find the price elasticity of demand at the free market price

3) Use the supply curve to find the price elasticity of supply at the free market price