Anonymous
Anonymous asked in Business & FinanceOther - Business & Finance · 1 decade ago

economics help???? price inelastic question?

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to

1. increase.

2. decrease.

3. be unchanged.

4. either increase or decrease, depending on what happens to supply.

5 Answers

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  • 1 decade ago
    Best Answer

    A good harvest implies an increase in supply, so 4 can't be the answer. Since demand is in the inelastic range, an increase in supply Q will bring the revenue closer to the POINT OF GREATEST TOTAL REVENUE (P x Q), which occurs on the point of the curve where elasiticity is unit elastic. So revenue will increase, answer is 1.

  • 4 years ago

    What the term means is that for every change in price, the change in demand is smaller in proportion. Analysing the situation, I believe that a good harvest means supply increases, thus prices decrease. Technically, this should entail greater demand. However, the inelasticity of agricultural goods causes demand to only increase by a little, profits decline and the income of farmers suffers as well. Incomes in other sectors should increase given that agricultural goods are now cheaper.

  • Eric G
    Lv 4
    1 decade ago

    It has been a while since business school, but I would say either increase or decrease depending on supply. A good harvest only tells you that you have the crops it does not mean people are buying the crops or taking into account other variables such as the crop being destroyed by nature.

  • buz
    Lv 7
    1 decade ago

    4. either increase or decrease, depending on what happens to supply.

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  • 1 decade ago

    unchanged

    Source(s): econ
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