Question

The income elasticity for most staple foods, such as wheat, is known to be between zero and one. As incomes rise over time, what will happen to the demand for wheat? What will happen to the quantity of wheat purchased by consumers? What will happen to the percentage of their budgets that consumers spend on wheat? All other things equal, are farmers likely to be relatively better off or relatively worse off in periods of rising incomes?

Answer 1

Answer and Explanation:

a. As it is given that the income elasticity of wheat is between zero and one that reflects inelastic and less than unity condition.

So in this, when the income is increased the demand for wheat is also increased but it would be less proportionally

And, the percentage increase in demand for wheat is lower than the increase in income

b. The quantity of wheat purchased is increased as there is an increase in income which increased the demand for all goods

c. The percentage of their budget will go decline as the income elasticity is between zero and one that results into an increase in income and they can switch more expenditure for other goods

d. The farmer condition does not affect overall as if the income increased the demand for other goods is also increased but it is more than the wheat