Final answer:
A farmer receives an indemnity payment under an area yield protection policy when there is a widespread decrease in agricultural production in the entire county, not just individual losses. This helps safeguard farmers against the unpredictable and often drastic impacts of natural conditions that affect crop yield and revenue.
Step-by-step explanation:
A farmer would receive an indemnity payment under an area yield protection policy when they suffer a loss of yield and the overall production in the entire county is low. This type of policy does not compensate farmers for individual losses but rather for widespread loss experienced across a region.
Area yield protection policies are crucial because they take into account the inelastic demand for food and the impact that natural conditions such as drought, floods, and infestations can have on agricultural production and revenue. A systemic decrease in production, much like the drought experienced in northern China or by different causes such as those faced during the Great Depression, can cause prices to rise but result in low yields that are below a predetermined threshold, hence triggering the indemnity payments to farmers.