Can Good News for Farming Be Bad News for Farmers? Let's now return to the question posed at the beginning of this chapter: What hap pens to wheat farmers and the market for wheat when university agronomists dis- cover a new wheat hybrid that is more productive than existing varieties? Recall from Chapter 4 that we answer such questions in three steps, First, we examine whether the supply or demand curve shifts. Second, we consider which direction the curve shifts. Third, we use the supply and demand diagram to see how the market equilibrium changes. In this case, the discovery of the new hybrid affects the supply curve. Because the hybrid increases the amount of wheat that can be produced on each acre of land, farmers are now willing to supply more wheat at any given price. In other words, the supply curve shifts to the right. The demand curve remains the same because consumers' desire to buy wheat products at any given price is not a the introduction of a new hybrid. Figure 8 shows an example of such a change. When the supply curve shifts from si to S., the quantity of wheat sold increases from 100 to 110, and the price of wheat falls from $3 to $2. But does this discovery make farmers better off? As a first cut to answering this question, consider what happens to the total revenue received by farmers, Farm revenue is xe the price of the wheat times the quantity sold farmers t covery affects farmers in two conflicting ways. The hybrid allows Produoe more wheat (Q rises), but now each bushel of wheat sells for less falls), Whether total revenue rises or falls depends on the elasticity of demand. tn practice, the demand for basic foodstuffs such as wheat is usually inelastic, these items are relatively inexpensive and have few good substitutes. When the demand curve is inelastic, as it is in Figure 8, a decrease in price causes fall You see this in the figure: only slightly. Total revenue falls from price of wheat falls substantially, whereas the quantity of $220. Thus, the discovery of the new hybrid lowers the total revenue that farmers receive for the sale of their crops. made worse o adopt it? The answer to this question goes to the work Because each farmer is small of market for competitive markets the price of wheat as given. For any given price of wheat, it is better to use the new hybrid in order to produce and sell more wheat. Yet when au farmers do this, the supply of wheat rises, the price falls, and farmers are worse off Although this example may at first seem only hypothetical, in fact it helps to ex plain a major change in the US, economy over the past century Two hundred years ago, most Americans lived on farms. Knowledge about farm methods was sufficiently primitive that most of us had to be farmers to produce enough food Yet, over time, advances in farm technology increased the amount of food that each farmer could produce. This increase in food supply, together with inelastic food demand, caused farm revenues to fall, which in turru encoura ged people to leave farming A few numbers show the magnitude of this historie change. As recently as 1950, there were 10 million people working on farms in the United States, representing 17 percent of the labor force. In 2000, fewer than 3 million people worked on farms, percent of the labor force. This change coincided with tremendous advances in farm productivity: Despite the 70 percent drop in the number of farmers, US, did in produced more than twice the output of crops and livestock in 2000 as they analysis of the market for farm products also helps to explain a seeming paradox of public policy: Certain farm programs try to help farmers by them not to plant crops on all of their land. Why do these programs do this? Their Purpose is to reduce the supply offarm products and thereby raise With in- elastic demand or their products, farmers as a group receive greater total revenue they supply a smaller crop to the market. No single farmer would choose to because each takes the market price as given. But and if all farmers do so together each of them can be