8.2 Agriculture versus Manufactured goods and service

Demand and Supply for Agricultural Products

The agricultural sector is a very distinctive sector in the economy because it exhibits certain characteristics in terms of the demand for and the supply. The principal uniqueness of demand for agricultural goods are that, it is income and price inelastic and has high dependency on population and tastes that makes demand to be static in the short and the long run.

Supply on the other hand is very unstable in the short run due to the fact that supply is a biological process. In short run, technological application tends to increase production. Agricultural products are in some place cannot be preserved and production takes long period, supply will be inelastic so producers will have to supply in the short run even at very low prices. The number of producers may be high but significant producers may be less and most agricultural assets will be fixed. The implications for prices are that they are very unstable in the short run while in the long run present a declining trend. Similarly, farm incomes tend to be unstable in the short run and converge in the long run. It should be noted that the convergence in the long run is due to subsidization of agriculture extensively by the government.

In short run demand in the agricultural industry is affected by inelastic nature of income due to Engel's law which that states that with successive increases in income food consumption as a proportion of income declines. It is important to note that consumption is different from expenditure unless all goods have the same price.Demand and supply change when there is a change in determinants of demands.

8.2 Agriculture versus Manufactured goods and service

Demand and Supply for Manufactured goods and service

Any transaction involving goods or service has dimensions of demand and supply. The number of good that can be produced becomes the supply of that good and the number that can be purchased or have been purchased by the consumer and consumed becomes the demand.

Price of good or service is principal factor that determine demand or supply all other things being equal. Similarly, income of the consumer plays a crucial role in the issue of consumer demand for good and service.

The law of demand states that the higher the price, the lower the quantity demanded. The law of demand enables us to understand the substitution effect of price change. When the price of a good falls, its relative price makes consumers more willing to purchase the good but when the price of a good increases, its relative price makes consumers less willing to purchase the good. Changes in the relative prices that is, the price of one good compared to the prices of other goods causes the substitution effect. Consumer will substitute expensive for less expensive good. On the other hand, money income received per period of time affects demand of a product. Real Income is measured in terms of the goods and services it can buy When the price of a good decreases, real income increase. This means that consumer may not only buy more of the cheaper good, but buy more of other goods as well. When the price of good increases, real income declines, consumer buy less of that good and likely less of all other goods because consumer's real income declined.

8.2 Agriculture versus Manufactured goods and service

The law of supply on the other hand states that the higher the price the higher the quantity supply. The law helps to under stand that supply is time conscious. The discussion above may help us to understand three scenarios regarding manufacture goods or services:

1.	More Supply, Less Demand A kind of situation that is refers to as a surplus. Prices of goods in such a situation are low, owing to the less demand and more supply. Therefore, more the supply, lesser is the cost.
2.	More Demand, Less Supply It is the condition that is known as deficit of supply. Thus, there is more demand and less supply which leads to a rise in the price level. The lesser the supply, the more is the price and more the demand, higher is the price of good and service.
3.	Equilibrium This is the ideal situation in any market. The equilibrium is the level that equates quantity of supply and demand. In this type of a situation, the price is neither very less nor very large. It is specific. This is the desirable situation in any market as it ensures a great level of price stability of goods and services.