Supply and Demand in Agriculture Sector

Supply and Demand in Agriculture Sector

Introduction

The agricultural sector is a very unique one in economics because it displays characteristics in terms of the demand for and the supply of its goods not seen in any other sector. The main principal characteristics of demand are that it is both income and price inelastic and all the characteristics of perfect competition market apply on it. Demand has high dependency on population and tastes which cause it static in both the short and the long run. On the other hand supply in agriculture sector is very volatile in the short run due to extraneous factors such as weather, floats and other reasons which are not controllable. Supply is a biological process though in the long run due to technological advances it is tend to observe an increasing trend in the productivity. Also, because agricultural products are commodity products that cannot be last for long time and need special and costly condition to be stored, that is why supply will be inelastic and producers will have to supply in the short run even at very low prices.

English: Diagram illustrating the "aggregate suppl...

Perfectly inelastic demand

Perfectly elastic demand

These have various implications for prices which are very unstable in the short run and in the long run present a declining trend. In this paper we will discuss in detail Demand and Supply functions in the agriculture sector and we will study deeply the case of wheat as a strategic product which has a dramatic changes happened in supply, demand and price in the current year.

Demand Function in Agriculture Sector

Demand in the short run

In the short run demand in the agricultural industry is affected by the fact that it is income inelastic because of Engel's law which basically states that "with successive increases in income...