Assume the price elasticity of demand coefficient for wheat is 0.5. Using your knowledge of price elasticity of demand carefully explain how an increase in the price of wheat might affect the total revenue of farmers.
price elasticity of wheat = 0.50. It means that the demand for
wheat is inelastic. Wheat is a necessity. Demand for
necessities is usually inelastic.
If the price of wheat is increased, it will lead to an increase in
the total revenue of farmers. This is because, when the price of
wheat increases, the inelastic demand will prevent the demand from
falling in the same proportion as price. Or, when price increases,
quantity demanded will fall by less than proportional measure.
Hence the total revenue will increase.
Get Answers For Free
Most questions answered within 1 hours.