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 in 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 demand is inelastic, an increase in productivity leads to a larger supply, which typically results in lower prices. Since the quantity demanded does not increase significantly, total revenue decreases.

The Demand for Most Farm Products Is Relatively Inelastic