38 PART • Introduction: Markets and Prices What are the price elasticities of demand and supply at this price and quantity? We use the demand curve to find the price elasticity of demand: E PD = P ⌬QD 3.46 = ( -266) = -0.35 Q ⌬P 2630 Thus demand is inelastic We can likewise calculate the price elasticity of supply: E PS = = P ⌬QS Q ⌬P 3.46 (240) = 0.32 2630 Because these supply and demand curves are linear, the price elasticities will vary as we move along the curves For example, suppose that a drought caused the supply curve to shift far enough to the left to push the price up to $4.00 per bushel In this case, the quantity demanded would fall to 3550 - (266)(4.00) = 2486 million bushels At this price and quantity, the elasticity of demand would be E PD = 4.00 ( -266) = - 0.43 2486 The wheat market has evolved over the years, in part because of changes in demand The demand for wheat has two components: domestic (demand by U.S consumers) and export (demand by foreign consumers) During the 1980s and 1990s, domestic demand for wheat rose only slightly (due to modest increases in population and income) Export demand, however, fell sharply There were several reasons First and foremost was the success of the Green Revolution in agriculture: Developing countries like India, which had been large importers of wheat, became increasingly self-sufficient In addition, European countries adopted protectionist policies that subsidized their own production and imposed tariff barriers against imported wheat In 2007, demand and supply were Demand: QD = 2900 - 125P Supply: QS = 1460 + 115P Once again, equating quantity supplied and quantity demanded yields the market-clearing (nominal) price and quantity: 1460 + 115P = 2900 - 125P P = $6.00 per bushel Q = 1460 + (115)(6) = 2150 million bushels