Suppose the current market price for wheat is 3 per bushel...

Suppose the current market price for wheat is $$\$ 3$$ per bushel and that 10 billion bushels are currently being marketed both domestically and abroad. Given the following market shares and own-price elasticities of demand for domestic and export markets, answer the following questions. $$ \begin{array}{lcc} & \text { Market Share (\%) } & \text { Own-Price Elasticity } \\ \hline \text { Domestic } & 40 & -0.20 \\ \text { Foreign } & 60 & -2.00 \end{array} $$ a. What would happen to U.S. wheat producers' total revenue if the quantity they supplied to the market increased by $3 \%$ (i.e., how much would their total revenue change from current levels)? b. Would domestic consumers of wheat products be better off or worse off economically than they were before this increase in supply? Why? Illustrate your answer graphically.

Suppose the current market price for wheat is $$\$ 3$$ per bushel and that 10 billion bushels are currently being marketed both domestically and abroad. Given the following market shares and own-price elasticities of demand for domestic and export markets, answer the following questions.
$$
\begin{array}{lcc}
& \text { Market Share (\%) } & \text { Own-Price Elasticity } \\
\hline \text { Domestic } & 40 & -0.20 \\
\text { Foreign } & 60 & -2.00
\end{array}
$$
a. What would happen to U.S. wheat producers' total revenue if the quantity they supplied to the market increased by $3 \%$ (i.e., how much
would their total revenue change from current levels)?
b. Would domestic consumers of wheat products be better off or worse off economically than they were before this increase in supply? Why? Illustrate your answer graphically.

Key Concepts

Consumer Surplus and Welfare Analysis

Consumer surplus represents the difference between what consumers are willing to pay for a good and the amount they actually pay, serving as a measure of consumer welfare. When market conditions change—such as through an increase in supply—the resulting shifts in equilibrium price and quantity can affect consumer surplus, indicating whether consumers are economically better off or worse off. Graphical analysis using supply and demand curves is a common tool to illustrate these welfare changes.

Weighted Average Price Elasticity

In markets that are divided into different segments with distinct demand elasticities, such as domestic and export markets, a weighted average price elasticity is used to analyze the overall market response. This concept takes into account the proportion of sales in each segment, providing a more comprehensive understanding of how aggregate demand will react to changes in market conditions.

Price Elasticity of Demand

Price elasticity of demand measures the responsiveness of the quantity demanded to a change in the price of a good or service. It is expressed as the percentage change in quantity demanded divided by the percentage change in price, and it helps explain how changes in market conditions—like shifts in supply—can impact both prices and quantities sold.

Total Revenue and Its Relationship to Elasticity

Total revenue, defined as the product of price and quantity sold, is directly affected by changes in price and quantity. The concept of price elasticity of demand is crucial here because it determines whether a change in price, resulting from an increase in supply, will raise or lower total revenue. Inelastic demand typically leads to revenue increasing as price falls, while elastic demand may result in revenue declining.

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