When supply increase in an agricultural market farmer's earning might fall because ?
Correct answer: B. Demand is price inelastic
- A. Supply is price elastic
- B. Demand is price inelastic
- C. The government buys up all the excess production
- D. All output must be sold at a maximum price
Explanation
When demand for agricultural products is price inelastic, a rise in supply causes a proportionately larger fall in price than the rise in quantity sold. Total farmer revenue can therefore decline.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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