Question

Many governments around the world attempt to improve the incomes of commodity producers by taking steps to increase the commodity price in the domestic market. Although this may reduce quantity demanded for the product, the action may be effective because:

Answer 1

Answer:

This action may be effective because commodity demand tends to be inelastic, so the higher prices may result in higher income for commodity producers, at least in the short term.

Explanation:

Essential commodities such as basic food items, gasoline, electricity, water, and other utilities, tend to have an inelastic demand simply because consumers cannot go without them, and they tend to prioritize these commodities over other goods and services.

This means that the higher prices caused by government intervention do not necessarily result in less demand, and the same amount of people buying the same amount of commodities at a higher price simply means a higher sales revenue for commodity producers.