128 PART • Producers, Consumers, and Competitive Markets than the buyer (What the seller perceives as total revenue, the consumer views as total expenditures.) When demand is inelastic, a price increase leads only to a small decrease in quantity demanded; thus, the seller’s total revenue increases But when demand is elastic, a price increase leads to a large decline in quantity demanded and total revenue falls E X AM P L E 4.3 THE AGGREGATE DEMAND FOR WHEAT In Chapter (Example 2.5—page 37), we explained that the demand for U.S wheat has two components: domestic demand (by U.S consumers) and export demand (by foreign consumers) Let’s see how the total demand for wheat can be obtained by aggregating the domestic and foreign demands Domestic demand for wheat is given by the equation QDD = 1430 - 55P where QDD is the number of bushels (in millions) demanded domestically, and P is the price in dollars per bushel Export demand is given by QDE = 1470 - 70P where QDE is the number of bushels (in millions) demanded from abroad As shown in Figure 4.12, domestic demand, given by AB, is relatively price inelastic (Statistical studies have shown that price elasticity of domestic demand is about −0.2 to −0.3.) However, export demand, given by CD, is more price elastic, with an elasticity of about −0.4 Why? Export demand is more elastic than 30 F IGURE 4.12 A Price (dollars per bushel) 25 THE AGGREGATE DEMAND FOR WHEAT Total Demand C E The total world demand for wheat is the horizontal sum of the domestic demand AB and the export demand CD Even though each individual demand curve is linear, the market demand curve is kinked, reflecting the fact that there is no export demand when the price of wheat is greater than about $21 per bushel 20 15 Export Demand 10 Domestic Demand B 0 500 1000 F D 1500 2000 Quantity (million bushels per year) 2500 3000