Question

Exceptionally large harvests of wheat or corn often result in farmers having lower total incomes for that season despite the increased production. Economists explain this fact by saying that:A. the demand of wheat and corn is basically inelastic and so increases in output drastically reduce price and income to the farmers.B. the demand for wheat and corn is basically elastic and so increases in output drastically reduce price and income to farmers.C. farming is an inefficient industry.D. consumers have demonstrated the substitution effect and sought other foods.E. this is an example of the income effect for farmers.

Answer 1

Answer:

A. The demand of wheat and corn is basically inelastic and so increases in output drastically reduce price and income to the farmers.

Explanation:

Inelastic demand means the change in price does not affect the purchasers' buying power. The difference in price has relatively little effect on the quantity demanded.  Since the demand for wheat is inelastic, price and income will reduce irrespective of increasing production. Therefore, harvesting massive production (wheat or corn) does not bring a high income.