Agriculture Reference
In-Depth Information
D
$40.00
D3
D2
$37.50
Increase in demand
$35.00
$32.50
P
1
$30.00
$27.50
$25.00
$22.50
$20.00
Decrease in demand
$17.50
$15.00
$12.50
$10.00
0
5
10
15
20
25
Q
1
30
35
40
45
Q
3
Q
2
Quantity
of cereal
(000 cases)
Figure 3.4
Shifts in demand curves
4.
Number of buyers
: Sheer increases in the population or number of buyers can shift the
demand to the right. Another way to increase the number of buyers is to identify new
markets for an existing product. For example, Roundup© was initially an herbicide for
farm use. Today, a wide range of related Roundup© products are also available for
home lawncare, while government agencies use it to eradicate illegal drugs or invasive
species.
5.
Price of substitutes or complements
: A fall in the price of a close substitute product will
shift the demand curve to the left, while a fall in the price of a complementary product
will cause demand to shift to the right.
A skilled manager must be able to draw inferences from what he or she reads or hears. In
practice, demand and supply are not static, but are in a constant state of fl uctuation. At any
point in time, “price” represents the market's best guess of the current supply-demand situ-
ation. Because conditions are based on buyers' and sellers' judgments of the actual supply
and demand, the situation is highly volatile and can change both rapidly and frequently.
Market prices for a great many agricultural products and supplies change throughout the day
as managers obtain additional information. For example, a USDA crop report might indicate
that soybean yields in Argentina are worse than expected because of drought. This weather
shift would shift supply to the left, and means that soybean prices are likely to rise.
The supply and demand curves represent a theoretical relationship between price and
quantity at a given point in time. The curves here have been illustrated by straight-line func-
tions. This was done to facilitate explanation of the curves; but most supply and demand
curves are actually curvilinear over some range of price and quantity, and may be quite com-
plex. Agricultural economists spend considerable time and effort attempting to estimate
