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 right..so 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 didn't 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.
D is indeed correct.
http://www.econessays.com/page4.htm
Let's break down the question and the possible answers to understand why the correct answer is D.
The question is asking about the relationship between agricultural production and the total amount paid for agricultural products. We need to determine how the total amount paid changes when agricultural production increases.
To answer this question, we must consider the concept of price elasticity of demand. Price elasticity of demand measures how sensitive the quantity demanded of a good is to changes in its price. It helps us understand whether demand for a good is elastic (responsive to price changes) or inelastic (relatively unresponsive to price changes).
Now let's analyze the answer choices:
a. increase because demand is price elastic
If demand is price elastic, it means that a small increase in price will lead to a large decrease in quantity demanded, resulting in a decrease in total amount paid. Therefore, option a is incorrect.
b. decrease because demand is price elastic
If demand is price elastic, a decrease in price will lead to a large increase in quantity demanded, resulting in an increase in total amount paid. Therefore, option b is incorrect.
c. increase because demand is price inelastic
If demand is price inelastic, it means that a change in price will result in a smaller change in quantity demanded. In this case, an increase in agricultural production would lead to an increase in supply. If demand remains relatively stable or inelastic, the increase in supply would lower the price of agricultural products. However, since demand is price inelastic, the percentage change in quantity demanded would be less than the percentage change in price. As a result, the increase in supply would not fully offset the decrease in price, leading to a decrease in total amount paid. Therefore, option c is incorrect.
d. decrease because demand is price inelastic
This option correctly identifies that demand is price inelastic. As explained in the previous analysis, an increase in agricultural production would lead to a decrease in price, but the decrease in price would not be proportional to the increase in supply due to the inelastic demand. Therefore, the total amount paid for agricultural products would decrease. Option d is the correct answer.
e. remain constant because demand is price inelastic
This option incorrectly suggests that the total amount paid would remain constant when agricultural production increases. However, as discussed earlier, the decrease in price resulting from increased supply would not be fully offset by the relatively stable demand, resulting in a decrease in total amount paid. Therefore, option e is incorrect.
To summarize, the correct answer is d. When agricultural production increases, the total amount paid for agricultural products tends to decrease because demand is price inelastic.