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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Explain why the following might be true: 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.

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To determine
The price elasticity of demand and the revenue.

Explanation

A drought is more likely to be good for farmers if the demand for grain is inelastic. This is because a drought reduces the supply causing the supply curve to shift leftwards. This increases the price of grains. When demand is inelastic, a higher price of grains results in a less or no fall in quantity demanded of grains thereby increasing the total revenue of the farmers...

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