If wheat prices rose by 12 percent when producers thought other prices were rising by 15 percent,what is the effect on wheat output?
A)We could not predict the likely change in wheat output that would result.
B)It would tend to rise as a result.
C)It would tend to remain unchanged as a result.
D)It would tend to fall as a result.

Question

Quizplus · Accepted Answer

If wheat producers think that other prices are rising by 15 percent, they may allocate more resources towards producing other goods, causing a decrease in wheat output. The fact that wheat prices rose by 12 percent suggests that demand for wheat is relatively inelastic, meaning that producers are not significantly increasing their wheat output in response to the price increase. Therefore, the most likely effect on wheat output is a decrease, or choice D.

If Wheat Prices Rose by 12 Percent When Producers Thought