Answer to Question #174928 in Microeconomics for John

Question

Use your knowledge of supply-and-demand curves and elasticity to

explain why farmers as a group may prefer bad weather to good weather,

even though an individual farmer prefers good weather to bad

weather.

Answer 1

Farmers as a group prefer bad weather to good weather because bad weather represents a shift of the short-run supply curve to the left thus prices will increase. Assuming the prices increases to a greater extent than demand falls a firm revenue will increase if crops are reduced.

However, an individual farmer will not want to see his crop reduced by bad weather. This is because the output of an individual farm has a negligible effect on the supply curve, and hence the market price, for firm produce. Therefore an individual farmer would lose out - due to lower output, but unchanged prices.