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University of California, Berkeley *

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242

Subject

Economics

Date

Feb 20, 2024

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Uploaded by ProfQuailPerson949

The following graph illustrates the market for cashews. It plots the monthly supply of cashews and the monthly demand for cashews. Suppose an increase in pests destroys a major portion of cashew trees. Show the effect this shock has on the market for cashews by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. @ O | Supp Demand 24 + O g 5 18 + Supply o < L ----------+ é 1 w 12 : X o I I emand 6 + : I i 0 . . . 0 - 8 12 16 20 QUANTITY (Thousands of tons) One of the growers is pleased with the price increase caused by the pests because she believes it will lead to increased revenue. Using elasticities, you will be able to determine whether this price change will lead to a rise or fall in total revenue in this market. Using the midpoint method, the price elasticity of demand for cashews between the price levels of $15 and $18 pertonis ¥ , meaning that between these two points, demand is w . Thus, you can conclude that the grower’s claim is w , because total revenue will w due to the pestilence. Confirm your previous conclusion by calculating total revenue in the cashew market before and after the pestilence. Enter these values in the following table. Before Pestilence After Pestilence Total Revenue (Thousands of Dollars) |

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