(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 153

128 PART 2 • 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 2 (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
5

B

0
0

500

1000

F

D
1500

2000

Quantity (million bushels per year)

2500

3000