Answer to Question #34873 in Economics of Enterprise for arunjyot idas

Question

A good harvest will generally lower the income of farmers.” Elaborate this proposition using a supply-and-demand diagram?

Answer 1

When supply is relatively inelastic a change in demand affects the price more than the quantity supplied. The reverse is the case when supply is relatively elastic. A change in demand can be met without a change in market price. This also cause the total income to decrease.