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19
Agriculture: Economics and Policy
McGrawHill/Irwin Copyright © 2012 by The McGrawHill Companies, Inc. All rights reserved.
Economics of Agriculture
• Extreme diversity
• Farm products and food products
• Short-run price and income instability •Inelastic demand
•Fluctuations in output •Fluctuation in demand
• Dependence on world markets
LO1 19-2
Economics of Agriculture
• Effects of changes in farm output on agricultural prices and income
P
Pp p
Pn n
Normal Farm
Pb Income b
D
0
Increases
Q Q Qb Q
in output reduce farm income
LO1 19-3
Economics of Agriculture
• The effects agricultural
P
of a demand shift on prices and income
P1 a
P2 b
0
Shift in demand
DD1 n
causes a
Q
large change in
price and farm income
LO1 19-4
The Long Run: A Declining Industry
• Supply increased rapidly •Technological progress
• Demand increased slowly
• Inelastic with respect to income • Population growth
LO2 19-5
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