(A) “Market demand for wheat is relatively stable over time but market supply of wheat is very much influenced by the weather. For example, a natural drought decreases the supply of wheat and pushes up its prices while a bumper crop can severely depress wheat prices. Acts of nature thereby can result in large increases or decreases in the prices of agricultural commodities. The profitability of farmers becomes uncertain, as does the prices of food products and income needed to feed a household.”
Keeping in view the scenario (A), suggest the most appropriate action that the government should take in this situation in order to stabilize the wheat farmer’s income and to encourage them to continue farming whether there are bumper crops or droughts.
(B) “There is an awful lot of coffee in Brazil; it supplies a large share of the world market. In 1994, people first began to realize that a frost in Brazil would cause havoc with the 1995 harvest. The economist magazine at that time reported estimates that the 1995 crop would be less than that of 1994. It was obvious that coffee was going to be scarce in 1995. Anticipating this situation, speculators bought coffee in 1994, bidding up its price even before the supply fell. Following table shows the price rise of coffee during these years.
Years
1993
1994
1995
Price ($)
0.9
2.0
2.1
Export Quantity
113
102
85
Keeping in view the scenario (B), analyze whether the demand for coffee is elastic, inelastic or unitary elastic and why?
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a memorandum of associatio, this is a question in my test on monday and the text book with the answer is at school what is it?
(A) In order to stabilize the wheat farmer's income and encourage them to continue farming regardless of bumper crops or droughts, the government could implement the following actions:
1. Crop Insurance: The government can provide crop insurance programs to mitigate the financial risks faced by farmers due to unpredictable weather conditions. This would provide a safety net for farmers by compensating for losses in case of crop failure.
2. Subsidies and Price Supports: The government can offer subsidies and price supports to wheat farmers to ensure a minimum income level. This would help stabilize their income by providing a guaranteed minimum price for their crops.
3. Research and Development: The government can invest in research and development to develop drought-resistant or climate-resilient wheat varieties. This would help farmers to better cope with adverse weather conditions and reduce the impact of supply shocks on wheat prices.
4. Diversification and Crop Rotation: The government can provide incentives for farmers to diversify their agricultural activities or practice crop rotation. This would reduce their dependency on wheat alone and provide alternate sources of income during years of low wheat prices.
By implementing these measures, the government can stabilize the wheat farmer's income and provide them with the necessary support to continue farming, irrespective of weather fluctuations.
(B) To determine whether the demand for coffee is elastic, inelastic, or unitary elastic, we need to analyze the price elasticity of demand for coffee. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
From the given data:
% change in price = [(2.1 - 2.0) / 2.0] * 100 = 5%
% change in quantity = [(85 - 102) / 102] * 100 ≈ -16.67%
Price elasticity of demand = % change in quantity / % change in price
= -16.67% / 5%
≈ -3.33
Since the price elasticity of demand for coffee is greater than 1 (-3.33), the demand for coffee is considered elastic. This means that a change in price will result in a proportionally larger change in quantity demanded. In the case of coffee, a relatively small increase in price led to a significant decrease in the quantity demanded (from 102 to 85 units), indicating that coffee consumers are sensitive to price changes.