Which of the following might explain why farm revenues are higher in years of lower production due to bad weather?
A)Demand is more elastic than supply.
B)Supply is perfectly elastic.
C)Demand is relatively inelastic; a leftward shift in supply will increase total revenue.
D)Supply is relatively inelastic; a leftward shift in supply will increase total revenue.
E)None of the above.

Question

Quizplus · Accepted Answer

The correct explanation is that when demand is relatively inelastic, a decrease in supply (leftward shift in supply) leads to a proportionally larger increase in price. Since the quantity demanded does not decrease significantly with an increase in price (due to inelastic demand), the total revenue can increase even though the quantity sold is lower. This scenario is common in agricultural markets where, despite lower production levels due to bad weather, the total revenue for farmers can increase because the demand for essential food items does not decrease significantly with price increases.

Which of the Following Might Explain Why Farm Revenues Are