The demand for most farm products is relatively inelastic.All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?
A)Farm revenues increase.
B)Farm revenues decrease.
C)Farm revenues remain constant because consumers will not increase their consumption of farm products by much.
D)Farm revenues could increase or decrease depending on the cost of this new equipment.

Question

Quizplus · Accepted Answer

When productivity increases due to better equipment, supply increases, leading to lower prices. Since demand is inelastic, the percentage drop in price leads to a smaller percentage increase in quantity demanded, resulting in decreased total revenue.

The Demand for Most Farm Products Is Relatively Inelastic