Assume that Canadian farmers face a price elasticity of demand for wheat of 0.65. How will a bad harvest that sends wheat price up by 15% affect wheat growers?

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Price per Can Quantity Demanded in Total Revenue ($1000's) 1000's $1.80 60 108 $1.60 70 112 Elasticity of Demand Elastic from $1.60 to $1.80 Unitary elasticity from $1.40 to $1.60 $1.40 80 112 Inelastic from $1.20 to $1.40 $1.20 90 108 Inelastic from $1.00 to $1.20 $1.00 100 100 The above chart shows that from $1.00 to $1.40 the total revenue goes up. Therefore demand is inelastic. From $1.40 to $1.60 the total revenue stays the same. The drop in demand has offset the increase in price exactly. Above $1.60 total revenue drops. Therefore demand is elastic. Big businesses have marketing departments that may do research to determine the elasticity of demand for their product. For small businesses trial and error and using small price changes may be the approach used. Elasticity of demand can apply to labour as well. Highly skilled workers are able to demand higher wages because there is no easy substitute for their skills. Elasticity of demand is an important consideration for the government when deciding excise taxes. The government taxes products with inelastic demand, e.g. gasoline, because the consumer is willing to pay the higher price. The government also taxes items like alcohol and tobacco, where they are not concerned with a drop in demand. Other Types of Elasticity Cross-Elasticity of Demand Explores how the price of a related good (complement or substitute) affects the quantity demanded of a good or service. Elasticity of Supply Measures a Seller's responsiveness to a change in price. Affected by: Price per Can Quantity Demanded in Total Revenue ($1000's) 1000's $1.80 60 108 $1.60 70 112 Elasticity of Demand Elastic from $1.60 to $1.80 Unitary elasticity from $1.40 to $1.60 $1.40 80 112 Inelastic from $1.20 to $1.40 $1.20 90 108 Inelastic from $1.00 to $1.20 $1.00 100 100 The above chart shows that from $1.00 to $1.40 the total revenue goes up. Therefore demand is inelastic. From $1.40 to $1.60 the total revenue stays the same. The drop in demand has offset the increase in price exactly. Above $1.60 total revenue drops. Therefore demand is elastic. Big businesses have marketing departments that may do research to determine the elasticity of demand for their product. For small businesses trial and error and using small price changes may be the approach used. Elasticity of demand can apply to labour as well. Highly skilled workers are able to demand higher wages because there is no easy substitute for their skills. Elasticity of demand is an important consideration for the government when deciding excise taxes. The government taxes products with inelastic demand, e.g. gasoline, because the consumer is willing to pay the higher price. The government also taxes items like alcohol and tobacco, where they are not concerned with a drop in demand. Other Types of Elasticity Cross-Elasticity of Demand Explores how the price of a related good (complement or substitute) affects the quantity demanded of a good or service. Elasticity of Supply Measures a Seller's responsiveness to a change in price. Affected by: