I need to write 6-7 lines explaining why is the following statement true:

A drought around the world raises the total revenue that farmers
receive from the sale of grain, but a drought only in
Kansas reduces the total revenue that Kansas farmers

I have few answers in my mind, but I have no economy training so it's really difficult for me to express my self using economic terms.

Is anyone kind to provide me a comprehensive answer.

  • 1
    $\begingroup$ Welcome to economics.SE! Please consider taking the time to read the faq to familiarise yourself with some of our common practices. As this question appears to be homework, please consider reading this page for information about asking homework-related questions. Cheers! $\endgroup$ – jmbejara Jan 10 '15 at 21:08
  • $\begingroup$ I just posted the answer. $\endgroup$ – Adrian George Jan 10 '15 at 21:09

The demand for the world grain is relatively inelastic, while the demand for the Kansas grain is relatively more elastic. As a worldwide drought reduces the supply of the world grain, the world price of grain rises significantly and the quantity of grain falls insignificantly. Therefore, total revenue that world farmers receive rises. On the other hand, as a drought only in Kansas reduces the supply of Kansas grain, the price of grain rises insignificantly and the quantity falls significantly. Therefore, total revenue that Kansas farmers receive falls.

  • $\begingroup$ You have no basis of saying that in a worldwide drought "the quantity of grain falls insignificantly". It may very well "fall significantly". So you have to weave into your argument about the world-wide drought case the fact/assumption that "demand is relatively inelastic". $\endgroup$ – Alecos Papadopoulos Jan 11 '15 at 3:39

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