Suppose that the price elasticity of demand for wheat is known to be -0.75. Will a good wheat crop (which increases the supply of wheat) be likely to increase or decrease farmers’ revenues?
To determine whether a good wheat crop will likely increase or decrease farmers' revenues, we need to understand the relationship between price elasticity of demand and changes in supply.
The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, since the price elasticity of demand for wheat is known to be -0.75, we can say it is an inelastic demand.
When the demand is inelastic, it means that a change in price has a proportionally smaller effect on quantity demanded. Therefore, if there is an increase in the supply of wheat due to a good crop, we can expect that the increase in quantity supplied will lead to a relatively smaller decrease in price. As a result, farmers' revenues are likely to decrease.
In summary, a good wheat crop that increases the supply of wheat is likely to decrease farmers' revenues due to the inelastic demand for wheat.