Economics.Explain why the following might be true?

Question

Explain why the following might be true. A drought around the world raises the total revenue that farmers receive from the sale of grain, but a drought only in Queensland reduces the total revenue that Queensland farmers receive.

Answer 1

well for the first part of the question, revenue is increased because demand of grain goes up now that less may be made due to the drought. for the second part there may be different circumstances for why this happens, such as... grain from other parts of the world is used to replace the grain that may not be produced... you must remember that demand is elastic. simply there must be and decrease of demand to see revenue go down... economics is very tricky considering artificial inflation and such.

Answer 2

If the price elasticity of demand is less than 1, the price may well increase by more than the drop in supply in the event of a world wide drought.

However, this may not be the same case on a localized basis, assuming that imports are available, because the price will be based on a global supply and demand curve, local farmers will be forced to accept the global price.