can good news for farming be bad news for farmers
If farmers are made worse off by the discovery of this new hybrid why do they adopt it? The answer tot his question goes to the heart of how competitive Markets work. Because each farmer is only a small part of the market for wheat he or she takes the price of wheat as given. For any given price of wheat it is better use the new hybrid to produce and sell more wheat. Yet when all farmers do this, the supply of wheat increases, the price falls and farmers are worse off.
Although this example may at first seem hypothetical it helps to explain a major change in the US economy over the past century. Two hundreds years ago, most Americans lived on farms. Knowledge about farm method was sufficiently primitive that most Americans had to be farmers to produce enough food to feed the nation’s population. Yet over time, advances in farm technology increased the amount of food that each farmer could produce. This increase in food supply, together with inelastic food demand, caused farm revenues to fall, which in turn encouraged people to leave farming.
A few numbers show the magnitude of this historic change. As recently as 1950, there were 10 million people working on farms in the US, representing 17 percent of the labor force. In 2004, fewer than 3 million people worked on farms, or 2 percent of the labor force. This change coincided with tremendous advances in farm productivity. Despite the 70 percent drop in the number of farmers US farms produced more than twice the output of crops and livestock in 2004 as they did in 1950.
This analysis of the market for farm products also helps to explain a seeming paradox of public policy. Certain farm programs try to help farmers by inducing them not to plant crops on all of their land. The purpose of these programs is to reduce the supply of farm products and thereby raise prices. When inelastic demand for their products, farmers as a group greater total revenue if they supply a smaller crop to the market. No single farmer would choose to leave his land fallow on his own because each takes the market price as given. But the farmers do so together each of them can be better off.
When analyzing the effects of farm technology or from policy it is important to keep in mind that what is good for farmers is not necessarily god for society as a whole. Improvement in farm technology can be bad for farmers because it makes farmers increasingly unnecessary but it is surely good for consumers pay less for food. Similarly a policy aimed at reducing the supply of farm products may raise the incomes of farmers but it does so at the expense of consumers.
more at http://www.citeman.com/10447-three-applications-of-supply-demand-and-elasticity.html#ixzz3fBiJh6lJ
can good news for farming be bad news for farmersIf farmers are made worse off by the discovery of this new hybrid why do they adopt it? The answer tot his question goes to the heart of how competitive Markets work. Because each farmer is only a small part of the market for wheat he or she takes the price of wheat as given. For any given price of wheat it is better use the new hybrid to produce and sell more wheat. Yet when all farmers do this, the supply of wheat increases, the price falls and farmers are worse off.Although this example may at first seem hypothetical it helps to explain a major change in the US economy over the past century. Two hundreds years ago, most Americans lived on farms. Knowledge about farm method was sufficiently primitive that most Americans had to be farmers to produce enough food to feed the nation’s population. Yet over time, advances in farm technology increased the amount of food that each farmer could produce. This increase in food supply, together with inelastic food demand, caused farm revenues to fall, which in turn encouraged people to leave farming.A few numbers show the magnitude of this historic change. As recently as 1950, there were 10 million people working on farms in the US, representing 17 percent of the labor force. In 2004, fewer than 3 million people worked on farms, or 2 percent of the labor force. This change coincided with tremendous advances in farm productivity. Despite the 70 percent drop in the number of farmers US farms produced more than twice the output of crops and livestock in 2004 as they did in 1950.This analysis of the market for farm products also helps to explain a seeming paradox of public policy. Certain farm programs try to help farmers by inducing them not to plant crops on all of their land. The purpose of these programs is to reduce the supply of farm products and thereby raise prices. When inelastic demand for their products, farmers as a group greater total revenue if they supply a smaller crop to the market. No single farmer would choose to leave his land fallow on his own because each takes the market price as given. But the farmers do so together each of them can be better off.When analyzing the effects of farm technology or from policy it is important to keep in mind that what is good for farmers is not necessarily god for society as a whole. Improvement in farm technology can be bad for farmers because it makes farmers increasingly unnecessary but it is surely good for consumers pay less for food. Similarly a policy aimed at reducing the supply of farm products may raise the incomes of farmers but it does so at the expense of consumers.more at http://www.citeman.com/10447-three-applications-of-supply-demand-and-elasticity.html#ixzz3fBiJh6lJ
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