Supply Demand Analysis PART A Agricultural Marketing Agricultural

Supply & Demand Analysis PART A Agricultural Marketing Agricultural Economics 364 Joey E. Mehlhorn, Ph. D.

Changes in Demand & Supply Curves The demand supply curves show the responses of buyers and sellers to changes in prices, everything else being equal. These curves can shift in position— a change in demand or a change in supply.

Factors That Shift Demand Curves: • Change in the number of buyers. • Change in incomes or purchasing power. • Change in tastes and preferences.

Factors That Shift Demand Curves: • Change in the prices of related products. • Change in expectations of buyers as to future levels of prices. • Changes in marketing costs, shifting derived demand.

Factors That Shift the Supply Curve: • Short-run: – Storage costs. – Change in financial conditions. – Expectations about future prices.

Factors That Shift the Supply Curve: • Long-run: – Costs of production. – Relative prices. – Technology.

Elasticity Buyers and sellers often want to know by how much will quantity respond to changes in price. Price elasticity is a measure of the responsiveness of quantity supplied or demanded to changes in price.

Elasticity

Elasticity Ep > |1| Elastic Ep = |1| Unitary Ep < |1| Inelastic

Elastic • A 10% change in the price leads to a greater than 10% change in the quantity supplied or demanded. Example: E(demand)=-1. 23 A 10% increase in the price would lead to a 12. 3% decrease in the quantity demanded.

Unitary Elasticity A 10% change in the price leads to a 10% change in the quantity supplied or demanded. Example: E(supply)=1. 00 A 10% increase in the price would lead to a 10% increase in the quantity supplied.

Inelastic A 10% change in the price would lead to a less than 10% change in the quantity supplied or demanded. Example: E(demand)=-0. 27 A 10% increase in price would lead to a 2. 7% decrease in quantity demanded.