Much of the demand for Canadian agricultural output has come from other countries. Suppose, in 2014, the total demand for Canadian wheat was QD = 3244 - 283p, where price is measured in dollars per bushel and quantities in millions of bushels per year. Of those, the demand of Canadian consumers was QDCND = 1244 - 83p. The supply of Canadian wheat in 2014 was QS = 1872 + 207p.
a) Compute the equilibrium price of Canadian wheat in 2014. What was the total revenue of Canadian wheat farmers?
Suppose the export demand for Canadian wheat expects to fall by 20% in 2015. On the other hand, the 2015's demand of Canadian consumers and the supply of Canadian wheat remain the same as the 2014's.
b) By how much do you expect the total revenue of the wheat farmers fall this year? (Hint: To find the export demand for wheat, you subtract the demand of Canadian consumers QDCND from the total demand QD.
c) Suppose now the Canadian government wants to buy enough wheat to raise the price to the 2014 level. How much wheat would the government have to buy? How much would this cost the government?
Much of the demand for Canadian agricultural output has come from other countries. Suppose, in 2014, the total demand for Canadian wheat was QD = 3244 - 283p, where price is measured in dollars per bushel and quantities in millions of bushels per year. Of those, the demand of Canadian consumers was QDCND = 1244 - 83p. The supply of Canadian wheat in 2014 was QS = 1872 + 207p.
a) Compute the equilibrium price of Canadian wheat in 2014. What was the total revenue of Canadian wheat farmers?
Suppose the export demand for Canadian wheat expects to fall by 20% in 2015. On the other hand, the 2015's demand of Canadian consumers and the supply of Canadian wheat remain the same as the 2014's.
b) By how much do you expect the total revenue of the wheat farmers fall this year? (Hint: To find the export demand for wheat, you subtract the demand of Canadian consumers QDCND from the total demand QD.
c) Suppose now the Canadian government wants to buy enough wheat to raise the price to the 2014 level. How much wheat would the government have to buy? How much would this cost the government?
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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?
