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When a tomato grower picks their crop, they only have a limited time to sell it. Many goods
are perishable. Initially, the grower thought they would receive price
Po, and therefore picked Qo tonnes of tomatoes. When the
grower got to the market, however, they found that demand that day had fallen, and the market
price for tomatoes was P1. The grower could put some of the tomatoes in
cold storage, but there was not enough room for all the stock of tomatoes. The grower had to
sell Q1 tonnes of tomatoes at whatever price they could get.
The supply of fresh
tomatoes is relatively inelastic; a fall in price does not significantly change the
quantity on offer. |
