Slide Show

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Slide Show 2

• AGEC 430
• Macroeconomics of Agriculture
• Fall 2009

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General Domestic Economy
Domestic Macro Policy
Global Macro Policy and Growth
Food Processing And Fiber Manufacturing Sectors
Farm Input Supply Sectors
Wholesale And Retail Trade Sectors
Farms and Ranches
Farm Policy
Environmental Policy
Domestic Wheat Market
Farm Credit Markets
Farm and Non-farm Labor Markets
Handout 1
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Handout 2
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US Corn Market Linkages
- Components of Supply -
US production
Beginning stock
Imports into US
Global market
Competitor nations
US Corn Market
Client nations
Food demand
Other demand
Feed demand
Stock demand
Export demand
- Components of Demand -
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US Corn Market Structure
Demand components Food use Feed use Other
domestic use Total domestic use Ending
stocks Exports Total demand Supply
components Beginning stocks Production Imports
Total supply
Demand
Supply
PE
QE
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A monopsonist (single seller) will consider the
marginal revenue product curve rather than the
market demand curve and set price where MRPMIC
rather than were demand equals supply under
perfect competition.
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Remember, the supply curve is the summation of
marginal cost curves of firms in the market, or S
?MCi.
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The supply curve for a monopolist (single buyer)
is its marginal cost curve. It will operate where
MRMC and price off the demand curve, thus
supplying less than that observed under perfect
competition.
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Merging Demand and Supply
Price
D
S
PE
D S
Quantity
QE
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A disequilibrium may occur in a market due to a
event affecting demand or supply where the market
has not fully reacted to the event. At a
specific asking price sought by producers,
consumers are not willing to buy (market
surplus), or buyers are willing to buy but
producers are not willing to sell (market
shortage).
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Year 2 Reactions
Producers use last years price as their
expected price for year 2 in deciding to produce
quantity Q2. consumers on the other hand pay this
years price determined by Q2.
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Year 3 Reactions
P3
P2
Producers now decide to cut back production
to quantity Q2 given last years price P2. This
lower quantity pushes price consumers must pay
up to P3 in year 3.
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Cobweb Pattern Over Time
Market equilibrium
The market converges to market equilibrium
where demand intersects supply at price PE. In
some markets, this adjustment period may only be
months or even weeks rather than years assumed
here.
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Given the inelastic demand for raw agricultural
products, an increase in supply will result in a
decline in revenue to producers.
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Effective ceiling creates a shortage where QD gt
QS
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Effective ceiling creates a shortage where QD gt
QS
Price ceilings set by government never work over
the longer run. An example is the ceiling placed
by President Nixon on meat back in the 1970s when
you could not find meat in the stores. The
ceiling was eventually removed.
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An increase in the minimum wage generally causes
an increase in unemployment of minimum wage
earners, resulting in a labor market surplus and
higher unemployment rate.
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Handout 3
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Signs are important
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Substitute demand and supply equations into the
equilibrium and solve for price (POWN)
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Revenue falls
Revenue rises
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