curves, any increase in the industry’s output (caused by an
increase in supply) will cause some fall in the market price.
However, as the calculations here show, any conceivable
increase that one wheat farm could make in its output has such
a negligible effect on the industry’s price that the farmer
correctly ignores it—the individual wheat farmer is thus a price
taker.
The market elasticity of demand for wheat is approximately
0.25. (Recall from Chapter 4 that an elasticity of 0.25 means
that a 10 percent decline in market price is associated with
only a 2.5 percent increase in quantity demanded.) Thus, if the
quantity of wheat supplied in the world were to increase by 1
percent, the price of wheat would have to fall by roughly 4
percent to induce the world’s wheat buyers to purchase the
extra wheat.
The total world production of wheat in 2018 was approximately
740 million tonnes, of which 28.4 million tonnes were produced
in Canada. In that year there were approximately 10 000 wheat
farms in Canada. Thus, the average crop size for a Canadian
wheat farmer in 2018 was about 2840 tonnes
, only 0.0004 percent of the world’s
wheat crop.
As a result of being such a small fraction of the overall market,
individual wheat farmers face a horizontal demand curve. To
see this, suppose an individual farmer on an average-sized
(=28.4million/ 10000 )