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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

How might a drought that destroys half of all farm crops be good for farmers? If such a drought is good for farmers, why don’t farmers destroy their own crops in the absence of a drought?

To determine
The inelasticity of demand and its effect in revenue.

Explanation

Destruction of half of all farm crops by a drought is more likely to be good for farmers if the demand for crop is inelastic. This is because the destruction of the crop reduces the supply causing the supply curve to shift leftwards. This increases the price of crops. When demand is inelastic, a higher price of crops results in a less or no fall in quantity demanded of crops thereby increasing the total revenue of the farmers...

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