Asked by Katie

I have a question, and I can't find the answer in the book. Can someone help me?

"The domestic demand for many Agricultural products is inelastic. How does this contribute to the price volatility of Ag products?"
Answered by Ms. Sue
When there's an abundance of a particular crop, the price is likely to go down. However, when a crop is hit by drought or adverse weather and is scarce, the price will go up.
Answered by Katie
I understand the part with volatility, but somehow I'm thinking the prices would be elastic with the big changes in prices due to weather, etc.
Answered by Ms. Sue
Yes. The weather makes the difference, usually, in the volatility of farm products. Good weather = abundant crops = lower prices. Bad weather = less crops = higher prices.
Answered by Katie
I'm sorry I'm being dense, but why would the question state that domestic demand is inelastic?
Answered by Ms. Sue
You're not being dense. Economics is not an easy subject.

Domestic demand is inelastic because people want about the same amount of food from one year to the next. The demand for wheat for bread, corn for tortilla chips, grapes for eating, juice, wine, etc. stays about the same.
Answered by Katie
OK, now I get it. Thanks!
Answered by Ms. Sue
You're very welcome. :-)
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