Case Study Week 5 - Brittany Burkhart Professor Feenstra 7...

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Brittany Burkhart Professor Feenstra 7 November 2008 Microeconomics Case Study: The Market for Food and the “Farm Problem” Because demand is price inelastic, the total revenue falls when the price falls. In this example there is a large increase in supply from S0 to S1. This surplus has exceeded the demand. There is a unit increase in quantity demanded from C to D, which would be a percent change of C divided by D. In order to save the farmers from having lower total revenue, the government has taken a loss of (A-B). To compute the percent change in price, we take the average of the initial price, P1, and the new price, P0. Farmers would have had to take that same cut in income. Farm Income would change from P1 to P0 in the diagram. For decades, America has taken pride in our “amber waves of grain.” Since 1950 however, the number of farmers has declined from 10 to 3 million (McEachern113). The farmer has fallen victim to the price and income elasticities of demand (McEachern 113). Modern technology has
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Case Study Week 5 - Brittany Burkhart Professor Feenstra 7...

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