In this case, the discovery of the new hybrid affects the supply curve. Because the hybrid increases the amount of wheat that can be produced in each acre of land farmers are now willing to supply more wheat at any given price. In other words, the supply curve shifts tot e right. The demand curve remains the same because consumers’ desire to buy wheat products at any given price are not affected by the introduction of anew hybrid. Figure shows an example of such a change. When the supply curve shifts from S1 to S2 the quantity of wheat sold increases from 100 to 110, and the price of wheat falls from $3 to $2.
Does this discovery make farmers better off? As a first cut to answering this question, consider what happens to the total revenue received by farmers. Farmers total revenue is P X Q the price of the wheat times the quantity sold. The discovery affects farmers n two conflicting ways. The hybrid allows farmers to produce more wheat (Q rises) but now each bushel of wheat sells for less (P falls).
Whether total revenue rises or falls depends on the elasticity of demand. In practice, the demand or basic foodstuffs such as wheat is usually inelastic because these items are relatively inexpensive and have few good substitutes. When the demand curve is inelastic as it in the figure, decrease in price cause total revenue to fall. You can see this in the figure. The price of wheat falls substantially whereas the quantity of wheat sold rises only slightly. Total revenue falls from $300 to $220. Thus, the discovery of the new hybrid lowers the total farmers receive for the sale of their crops.
more at http://www.citeman.com/10447-three-applications-of-supply-demand-and-elasticity.html#ixzz3fBhgoUQB
In this case, the discovery of the new hybrid affects the supply curve. Because the hybrid increases the amount of wheat that can be produced in each acre of land farmers are now willing to supply more wheat at any given price. In other words, the supply curve shifts tot e right. The demand curve remains the same because consumers’ desire to buy wheat products at any given price are not affected by the introduction of anew hybrid. Figure shows an example of such a change. When the supply curve shifts from S1 to S2 the quantity of wheat sold increases from 100 to 110, and the price of wheat falls from $3 to $2.Does this discovery make farmers better off? As a first cut to answering this question, consider what happens to the total revenue received by farmers. Farmers total revenue is P X Q the price of the wheat times the quantity sold. The discovery affects farmers n two conflicting ways. The hybrid allows farmers to produce more wheat (Q rises) but now each bushel of wheat sells for less (P falls).Whether total revenue rises or falls depends on the elasticity of demand. In practice, the demand or basic foodstuffs such as wheat is usually inelastic because these items are relatively inexpensive and have few good substitutes. When the demand curve is inelastic as it in the figure, decrease in price cause total revenue to fall. You can see this in the figure. The price of wheat falls substantially whereas the quantity of wheat sold rises only slightly. Total revenue falls from $300 to $220. Thus, the discovery of the new hybrid lowers the total farmers receive for the sale of their crops.more at http://www.citeman.com/10447-three-applications-of-supply-demand-and-elasticity.html#ixzz3fBhgoUQB
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