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

The elasticity of demand of buckwheat is less than 1 (1.25 < 1), which means that the demand for buckwheat is inelastic. In such a scenario, a decrease in supply due to bad weather will result in an increase in price, and since the demand is inelastic, the increase in revenue from the higher price will more than compensate for the decrease in the quantity sold. Therefore, total revenue of buckwheat producers will actually increase.

If the Elasticity of Demand Curve for Buckwheat Is -1