Author Question: The income elasticity for most staple foods, such as wheat, is known to be between zero and one. ... (Read 32 times)

jho37 · **on:** Jul 1, 2018

The income elasticity for most staple foods, such as wheat, is known to be between zero and one.

a. As incomes rise over time, what will happen to the demand for wheat?
b. What will happen to the quantity of wheat purchased by consumers?
c. What will happen to the percentage of their budgets that consumers spend on wheat?
d. All other things equal, are farmers likely to be relatively better off or relatively worse off in periods of rising incomes?

Question 2

As other firms enter a monopoly's market, the monopoly's market power

A) is unaffected.
B) declines.
C) increases.
D) increases according to the Lerner Index but decreases according to the price/marginal cost ratio.

alvinum · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

a. Demand will increase, since wheat has a positive income elasticity.
b. The quantity of wheat purchased will increase.
c. The percentage of consumer budgets spent on wheat and other staple goods will fall, since the percentage change in the demand for wheat will be less than the percentage change in income.
d. Farmers are likely to be relatively worse off, since the demand for what they are selling will be rising less rapidly than the demand for other goods that they are likely to purchase.

Answer to Question 2

B