Question 26
ElasticityWhat is the effect of inelastic demand for agricultural products on the income of a farmer?
- A.A price rise results in its fall
- B.A price fall results in its fall
- C.A price fall results in its rise
- D.A price rise leaves the income unchanged.
Show the answer and explanation
Answer: B (A price fall results in its fall)
Explanation
When demand is inelastic, a fall in price raises quantity sold by a smaller percentage, so total revenue (the farmer's income) falls.