AGRICULTURAL ECONOMICSAn introduction to supply and demand

Introduction• The most successful farmers have an awareness of the

market, that is who wants their produce, when and where.• To do this they need to have an understanding of

economics – the relationship between supply and demand.

• A simple way to start is to use graphs.

The Demand Curve

• The demand curve is a graph showing the relationship between the price and demand for a product.

• Normally there is an inverse relationship between the two variables which is the higher the price the lower the demand

Demand Curve

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Demand• There are several factors which can affect demand:• The price of the product• Price of similar products• Taste and preferences of consumers• Income of consumers• Population size• Season• etc.When there are changes to the demand the curve shifts

to the left or right.

Demand

• The curve shifts to the left if the demand reduces which could happen if there were a disease scare.

• The curve shifts to the right if the demand increases possibly due to a seasonal effect.

Demand Curve

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The Supply Curve

• The supply curve is a graph showing the relationship between the price and supply of a produce.

• Normally there is direct relationship between the two variables which is as the price rises so to does the supply

SupplyCurve

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Supply• Like demand, there are many factors which can affect supply:• Price of the product• Cost of inputs• Number of producers• Skill of the farmer• Technology• Seasonal effects• Storage and transport• Government restrictions and incentives• etc.

Supply

• The curve shifts to the left if supply reduces which could happen if there were a drought.

• The curve shifts to the right if the supply increases possibly due to a mild winter.

SupplyCurve

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Equilibrium Price

• To understand the market place the two curves most be fitted together.

The Equilibrium Market Price

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The Equilibrium Market Price

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