Answer to Question #108506 in Microeconomics for ebaad salman

Question

A storm destroys half the wheat crop. Is this event more likely to hurt wheat farmers if the demand for wheat is very elastic or very inelastic? Explain.

Answer 1

When storm destroys wheat crop, wheat farmers will be harmed more if the demand for wheat is elastic. If the demand for a good is elastic it means that the amount demanded is highly affected by price. Therefore when a storm damages the wheat crop and lowers the amount supplied, the resulting change in price will lower demand by a disproportionately large amount.