An agricultural corn market faces a positive supply shock due to a beneficial rainy season and the use of new genetically modified seeds. As a result, farmers face the largest crop harvest in decades. Which answer below explains how a farm could actually go bankrupt under this scenario.
A) The elasticity of supply for corn is elastic such that a positive shock reduces total revenue.
B) The demand for corn is inelastic such that a positive supply shock reduces total revenue.
C) An inelastic demand curve will cause revenue to fall because price decreases by more than the increase in quantity demanded.
D) B and C
Question 2
The current price floor in the agricultural lettuce market makes it such that the price of lettuce is 25 higher than the equilibrium price and that 100 heads of lettuce are demanded. Assuming that the elasticity of demand for lettuce is -0.50, how much would revenue (P Q) change for the lettuce company if the government removed the current price floor?
A) Revenue will increase by 15.60.
B) Revenue will decrease by 15.60.
C) Revenue will increase by 40.60.
D) Revenue will increase by 9.40.
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