An important determinant of the amount of grains harvested next year by Ethiopian farmers is the amount of seeds planted this year. Given that Western nations have guaranteed to donate five hundred tons of grain next year, this year the Ethiopian farmers will:
A) plant more seeds as the food aid establishes a minimum price for grain.
B) plant more seeds as the farmers' confidence is restored.
C) plant the same amount of seeds as they would have without the food aid.
D) plant fewer seeds as consumers demand for grain is completely price elastic.
E) plant fewer seeds as the price of grain will be lower with the food aid.

Question

Quizplus · Accepted Answer

The guaranteed donation of grain is likely to lower the market price of grain, reducing the incentive for farmers to plant as many seeds, as they may not be able to sell their harvest at a profitable price.

An Important Determinant of the Amount of Grains Harvested Next