If the elasticity of demand curve for buckwheat is -1.25 at all prices higher than the current price, we would expect that when bad weather reduces the size of the buckwheat crop, total revenue of buckwheat producers will fall.

Question

Quizplus · Accepted Answer

A negative elasticity of demand implies that when the price of a good increases, the quantity demanded of that good decreases. Therefore, if the price of buckwheat increases due to a decrease in supply caused by bad weather, the quantity demanded of buckwheat should decrease. However, if the elasticity of demand for buckwheat is less than one (in this case, -1.25), the decrease in quantity demanded will not be sufficient to offset the increase in price, resulting in an increase in total revenue for buckwheat producers. Therefore, the statement is false.

If the Elasticity of Demand Curve for Buckwheat Is -1