The discovery of a new hybrid wheat would tend to increase the supply of wheat. Under what conditions would wheat farmers realise an increase in revenue?

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BlackTom AI · Accepted Answer

Start by restating what the question is asking: a new hybrid wheat increases the overall supply of wheat, so under what condition would wheat farmers see higher revenue as a result?
Option 1: 'if the demand for wheat is elastic' - This is the key idea. When demand is elastic, consumers are responsive to price changes, so a drop in price due to the larger supply leads to a proportionally larger increase in quantity sold. The total revenue (price times quantity) rises because the percentage increase in quantity outweighs the percentage drop in price.
Option 2: 'if the supply of wheat is elastic' - Elasticity of supply describes how much quantity supplied responds to price changes. While elastic supply could affect how much quantity increases, it does not determine whether revenue rises. Revenue depends on the price-quantity move for a given demand curve; supply elasticity alone does not guarantee higher revenue.
Option 3: 'if the demand for wheat is inelastic' - When demand is inelastic, consumers are not very responsive to price changes. A price decrease due to a supply increase would cause only a small rise in quantity, so the overall revenue would likely fall or change little. Inelastic demand tends to reduce revenue when price falls.
Option 4: 'if the supply of wheat is inelastic' - Inelastic supply means quantity doesn’t rise much when price changes. Even with a price drop from increased supply, the small gain in quantity would not compensate for the lower price, making revenue unlikely to rise. This makes it an unfavorable condition for higher revenue.
To summarize the reasoning across options: the critical factor for revenue to increase when supply expands is that the quantity sold must rise enough to offset the lower price, which occurs when demand is elastic. The other options misstate the role of demand or supply elasticities in determining revenue outcomes under a supply shift.

The discovery of a new hybrid wheat would tend to increase the supply of wheat. Under what conditions would wheat farmers realise an increase in revenue?

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