November 29, 2015

Homework Help: Microeconomics

Posted by Karinna on Saturday, March 14, 2009 at 2:45pm.

When agricultural production increases , the total amount paid for agricultural products tends to
a. increase because demand is price elastic
b. decrease becasue deamn is price elastic
c. increase because demand is price inelastic
d. decrease because demand is price inelastic .
e. remain constant because demand is price inelastic

I looked online and it said the answer is D. But I'm having trouble figuring how they got that answer.

Okay..ive spend forever trying to figure this out. I have two explanations

First one: If im not mistaken, when it says "total amount paid for agricultural products" its referring to total revenue. and i figured out that if production increases price increases too based on these two conclusion i figured out this :
I looked at the linear demand curve and it shows that when demand is elastic total revenue will decrease if the price increases and when demand is inelastic total revenue will increase if price increases. So from this I can get either answer b or c and theres no option for both b and c. so i know im doing this wrong. If someone could please explain this to me clearly and elaborately id appreciate it. Thank you..Hope you didnt get lost while reading this. Looking at the linear demand curve will help you understand what im trying to say = )

My other explanation is
that when the production increases the supply curve increases and demand curve stays the same and then this causes total revenue to decrease

I wrote this in a hurry..excuse the mistakes. So please no comments on the mistakes. Thank you.

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