Suppose you learned that the price elasticity of demand for wheat is 0.7 between the current price for wheat and a price $2 higher per bushel. Do you think that

Farmers will not try to reduce the supply.

Explanation:

Price elasticity of demand is the responsiveness of demand against the change in the price of the good.

As per the given data

Elasticity of demand = 0.7

Change in price = $2

It is assumed that the Price was $10

Change in price = $2 / $10 = 0.20

Use the following formula to calculate the change in quatity demand  

Elasticity of demand = Change in quantity demand / Change in price

Placing values in the formula

0.7 = Change in quantity demand / 0.2

Change in quantity demand = 0.7 x 0.2 = 0.14 = 14%

As the price of the wheat increased by 20% the demand is decreased by 14%.

In this situation reducing the supply to increase the supply is not feasible because with the increase in price the demand for the wheat will fall which will conflict with their objective. It will reduce the revenue of the farmer's supply, in this case, the farmers try to reduce the supply more than will reduce their revenue more and it will make a loss for the farmers.

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