price elasticity
“This year the weather smiled on us, and we made a crop,” says a wheat farmer near Minnedosa in Manitoba. “But just as we made a crop, the economic situation changed.” This quotation brings to mind the old saying, “If you are a farmer, the weather is always bad.” Discuss the sense in which this saying might be true. (Hint: What happens to price if there is a bumper crop? What is the price elasticity of demand for wheat? Is it inelastic or elastic? What happens to total revenue if there is an increase in supply?)
If a product like corn or wheat has a bumper crop season, the selling price for the good would fall. This is because a bumper crop season indicates that the product had a bountiful crop growth and harvest; therefore, supply for the product would be excess. This means that the price for the product would decrease to influence consumers to purchase more of the product (Domm, 2013). Now that bumper crop has been covered, let us look at whether or not wheat price is elastic or inelastic. Elastic price indicates that a small change in price will adversely affect the demand for a product while inelastic price means that price changes do not affect demand for the goods and/or services (Investopedia, 2015). Further, price elasticity indicates how much of an impact a change in price will have on the consumers ' willingness to purchase goods and/or services (Tuck, 2015). Also, if the price goes up; the law of demand implies that the quantity of an item 's demand will decrease (Tuck, 2015). With the knowledge of the definition of both price inelastic and elastic in mind, let visit two scenarios concerning wheat. According to Krugman (2011) from 2008 to 2011, in general the production of wheat declined by 5% worldwide; which caused the price of wheat to double. In 2012, Canada 's wheat production record 33 million tonnes after a good crop season but the excellent harvest resulted in a fall in prices (CBC News, 2013). Owing that production (whether good or bad
If a product like corn or wheat has a bumper crop season, the selling price for the good would fall. This is because a bumper crop season indicates that the product had a bountiful crop growth and harvest; therefore, supply for the product would be excess. This means that the price for the product would decrease to influence consumers to purchase more of the product (Domm, 2013). Now that bumper crop has been covered, let us look at whether or not wheat price is elastic or inelastic. Elastic price indicates that a small change in price will adversely affect the demand for a product while inelastic price means that price changes do not affect demand for the goods and/or services (Investopedia, 2015). Further, price elasticity indicates how much of an impact a change in price will have on the consumers ' willingness to purchase goods and/or services (Tuck, 2015). Also, if the price goes up; the law of demand implies that the quantity of an item 's demand will decrease (Tuck, 2015). With the knowledge of the definition of both price inelastic and elastic in mind, let visit two scenarios concerning wheat. According to Krugman (2011) from 2008 to 2011, in general the production of wheat declined by 5% worldwide; which caused the price of wheat to double. In 2012, Canada 's wheat production record 33 million tonnes after a good crop season but the excellent harvest resulted in a fall in prices (CBC News, 2013). Owing that production (whether good or bad
References: CBC News. (2013). Farmers on track for bumper crop of wheat, other grains. Retrieved from http://www.cbc.ca/news/business/farmers-on-track-for-bumper-crop-of-wheat-other- grains-1.1912666 Domm, P. (2013). Promise of bountiful harvest pressures corn prices. Retrieved from http://www.cnbc.com/id/100957191#. Investopedia. (2015). Inelastic. Retrieved from http://www.investopedia.com/terms/e/inelastic.asp Investopedia. (2015). Price Elasticity Of Demand. Retrieved from http://www.investopedia.com/terms/p/priceelasticity.asp Krugman, P. (2011). Soaring Food Prices. Retrieved from http://krugman.blogs.nytimes.com/2011/02/05/soaring-food-prices/?_r=0Tuck, J. (2015). The Relationship Between Price Elasticity & Total Revenue. Retrieved from http://smallbusiness.chron.com/relationship-between-price-elasticity-total-revenue- 24544.html