1. Income Problems Income problems in agriculture stem from low price elasticity of demand for farm output and low income elasticity for farm output.

2. Estimated Elasticities

3. Price Elasticity of Demand Price elasticity of demand (Ed) measures the responsiveness of quantity demanded to a change in price, ceteris paribus.

4. Point Elasticity Ed = %Qd / %P where %Qd = Qd / Q1X100 %P = P / P1X100 Ed=(Qd/P)X(P1/ Q1) Arc Elasticity Ed = %Qd / %P where %Qd = {Qd / [(Q1+Q2)/2]}X100 %P = {P / [(P1+P2)/2]}X100 Price Elasticity of Demand

5. Discussion Questions From the following quotations what (if anything) can you conclude about elasticity of demand? • "Good weather resulted in record corn harvests and sent corn prices tumbling. For many corn farmers the result has been disastrous.” • “Ridership always went up when bus fares came down, but the increased patronage never was enough to prevent a decrease in overall revenue."

6. Discussion Questions • "When the Cincinnati Telephone Company started charging for directory assistance calls, the number of (such) calls dropped 80 percent.” • The 30 percent increase in postal rates has led us (The Narrangansett Electric Co.) to have 60 percent of our bills hand delivered instead of mailed.” • Coffee to me is essential -- you've gotta have it nomatter what the price."