The income elasticity for most staple foods, such as wheat, is known t

The income elasticity for most staple foods, such as wheat, is known to be between zero and one.

a. As incomes rise over time, what will happen to the demand for wheat?
b. What will happen to the quantity of wheat purchased by consumers?
c. What will happen to the percentage of their budgets that consumers spend on wheat?
d. All other things equal, are farmers likely to be relatively better off or relatively worse off in periods of rising incomes?

ANSWER

a. Demand will increase, since wheat has a positive income elasticity.
b. The quantity of wheat purchased will increase.
c. The percentage of consumer budgets spent on wheat and other staple goods will fall, since the percentage change in the demand for wheat will be less than the percentage change in income.
d. Farmers are likely to be relatively worse off, since the demand for what they are selling will be rising less rapidly than the demand for other goods that they are likely to purchase.