Because the demand for agricultural products is highly price inelastic, a modest increase in supply will cause

A) relatively large declines in farm prices and incomes.
B) relatively large increases in farm prices and incomes.
C) a small decline in farm prices, but an increase in farm incomes.
D) a large decline in farm prices, but an increase in farm incomes.

Question

Brenden Johnson · Accepted Answer

Final Answer : A, Explanation :  When demand is price inelastic, a small increase in supply can lead to a relatively large drop in price because consumers are not very responsive to price changes. This decrease in price can significantly reduce farm incomes, as the increase in quantity sold does not compensate for the lower price.

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