Which of the following statements supports how the following event could occur:
ID: 1190477 • Letter: W
Question
Which of the following statements supports how the following event could occur: A drought around the world raises the total revenue that farmers receive from the sale of grain, but a drought only in Kansas reduces the total revenue that Kansas farmers receive. Check all that apply.
a) A drought in Kansas is not significant enough to affect the worldwide price of grain.
b.The price elasticity of demand is inelastic, so a worldwide drought decreases the quantity sold but increases the price by a larger percentage.
c. A drought only in Kansas reduces the supply of grain provided by Kansas farmers, but the worldwide rise in price due to this local drought more than offsets this loss.
d. The price elasticity of demand is elastic, so a worldwide drought decreases the quantity sold but increases the price by a larger percentage.
Explanation / Answer
Correct options: (a) and (b)
Reason:
A drought in Kansas is not significant enough to affect worldwide price of grain and so prices do not rise while quantity falls, thereby leading to a fall in the revenues of farmers in Kansas.
Inelastic price elasticity of demand makes the price of grain to increase more than the fall in quantity, thereby making farmers better off by increasing their revenues due to increased prices.
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