theme 1 : agricultural goods

what are agricultural goods

goods that come from the raising of crops and or animals

is demand for food elastic or inelastic and why

• inelastic

• people have to eat so even if price for food increased, you would still have to buy it

• conversely, if price for good decreased, demand would not increase by much as you can still only eat a limited amount

is supply for agricultural goods elastic or inelastic

• inelastic

• farmers only have a certain amount of land, weather conditions could be bad and they have no control over producing livestock

• therefore farmers have limited control over how much they produce regardless of demand

what is a problem with farming

• in a free market the income of a farmer is low

• because they produce low value produce (e.g. corn, potatoes)

• supermarkets get the majority of the profit (if milk is £1, the farmer may only get 15p)

why is the income of farmers volatile

• demand for their goods is inelastic and supply is also inelastic

• so their income will often change (more demand = more income, more supply = lower income) as prices fall if supply increases so less profit is / can be made

• hard for them to plan for the future

2 means of gov intervention

• subsides

• minimum price

subsides explanation

• subsidies are payments from gov to farmers

• in theory subsidies can be directed towards farmers who are most in need to survive a downturn in fortunes

• can be given to farmers in return for promoting decisions which promote external benefits

• however subsides will cost the gov and will lead to higher taxes and or lower gov spending

minimum price explanation

• minimum price is when the gov sets a legal level that prices cannot fall below

• gives farmers a guaranteed income per unit of output

• the gov buys up and stores the excess food supply

• if next year, there is a shortage, then the gov can sell from the buffer stock and ensure sufficient food supplies