analyse the effects of falling costs of agricultural inputs and technological improvements in agriculture on the affordability of food
'Using a diagram, and referring to the concept of excess supply, analyse the effects of falling costs of agricultural inputs and technological improvements in agriculture on the affordability of food.'
Excess supply is also known as surplus. Falling costs of agricultural inputs is a non-price determinant of market supply, under Cost of factors of production. Technological improvement in agriculture is also another non-price determinant of market supply, which is classified under Technology.
Figure 1
When there is a falling cost of agricultural input the factor price falls, costs of production falls, production becomes more profitable and the firm produces more food; hence the supply curve shifts to the right.
An improvement in technology in agriculture also lowers costs of production, thus making production more profitable. The supply curve will shift to the right.
The two situations are depicted in figure 1, where the supply curve, S1 shifts to S2 due to an increase in supply.
(price against quantity demanded/supply curve)
Figure 2
When the quantity demanded is equal to the quantity supplied, we say that there is market equilibrium; the forces of supply and demand are in balance. There is no tendency for the price to change. However, if there is a change in non-price determinants of supply, a shift in the curve will result, and the market has to adjust to a new equilibrium.
Figure 3
In figure 3, the initial equilibrium is at a point a where D intersects S1, and where equilibrium price and quantity are P1 and Q1. An increase in supply due to the improvement in technology and falling cost of agricultural inputs shifts the supply curve to S2. With S2 and initial price P1, there is a move from point a to point b, where there is disequilibrium due to excess supply (by the amount equal to the horizontal distance between a and b). Therefore, price begins to fall, and as a result, a movement down S2 to point c where a new
Excess supply is also known as surplus. Falling costs of agricultural inputs is a non-price determinant of market supply, under Cost of factors of production. Technological improvement in agriculture is also another non-price determinant of market supply, which is classified under Technology.
Figure 1
When there is a falling cost of agricultural input the factor price falls, costs of production falls, production becomes more profitable and the firm produces more food; hence the supply curve shifts to the right.
An improvement in technology in agriculture also lowers costs of production, thus making production more profitable. The supply curve will shift to the right.
The two situations are depicted in figure 1, where the supply curve, S1 shifts to S2 due to an increase in supply.
(price against quantity demanded/supply curve)
Figure 2
When the quantity demanded is equal to the quantity supplied, we say that there is market equilibrium; the forces of supply and demand are in balance. There is no tendency for the price to change. However, if there is a change in non-price determinants of supply, a shift in the curve will result, and the market has to adjust to a new equilibrium.
Figure 3
In figure 3, the initial equilibrium is at a point a where D intersects S1, and where equilibrium price and quantity are P1 and Q1. An increase in supply due to the improvement in technology and falling cost of agricultural inputs shifts the supply curve to S2. With S2 and initial price P1, there is a move from point a to point b, where there is disequilibrium due to excess supply (by the amount equal to the horizontal distance between a and b). Therefore, price begins to fall, and as a result, a movement down S2 to point c where a new