Best if printed in landscape.

Demand and Supply

The previous discussion emphasized the trend of advancing technologies:  production, information/communication and transportation technologies.  The discussion also addressed increasing consumer income and suggested that the increase in consumer income is a result of advancing technology.  Another page reviews the determinants of demand and supply, price and market (required reading).

The focus of this page is on relating the trend of advancing technologies to the "implications" of those advances.  The relationship is discussed in terms of determinants of demand and supply.  Some of the implications may be viewed as negative, while other implications maybe considered positive.

Opportunities due to the Trends in Agriculture

The trends in agriculture, to a large extent, are the result of advancing technologies.  These may be best understood if addressed in terms of determinants of supply.

Production technology -- more output is produced, that is, the supply is increased and there is a downward pressure on market price as long as the demand for the product is not increasing.

Information technology -- suppliers can learn about the interest (demand?) of more consumers; consumers can learn about the availability of additional products.

Transportation technology -- combining an awareness of potential buyers with the ability to deliver to them, producers begin to recognize an opportunity for additional demand. Thus information and transportation technologies have added consumers to the producer's market.  Consumers can use a similar combination of information and transportation to increase the number of suppliers they can access.

Producers who have added consumers feel good. Other producers who had been serving those consumers in the past now feel there are more suppliers in their market (and there are).  These producers who are now competing with new producers would consider this change to be negative.  But is this second group of producers willing to try attracting consumers from new markets as well?

Similarly, consumers who now have to compete with additional consumers for the same products may be frustrating, but can these consumers now enter other markets as well?

Other Thoughts

• USDA indicates that expanding exports is important to U.S. agriculture.  Why?
  • What is the implication if the increase in the US food supply is outpacing the increase in US food consumption? Why is the US food supply increasing so rapidly? Why is the increase in US demand for food increasing more slowly? It is appropriate to describe the US food market as a mature market? Can we diagram this with supply and demand?

• We have mentioned two determinants of supply -- technology and government regulation. 
  • Can we diagram the impact of production technology? HINT -- TPP, TVC, MC, supply? (Review these economic concepts within the context of diminishing marginal productivity.)
  • Graph 29
  • What are the other determinants of supply and how do they apply to today's agriculture?

• We have mentioned several determinants of demand -- consumer income, consumer preferences, and number of consumers in the market. 
  • What are the other determinants of demand and how do they apply to today's agriculture?

• What is the impact of the United States expanding its import of agricultural products?

• A declining portion of U.S. income is being spent on food; is this due to increasing income or decreasing food cost?

• Consumer are becoming more specific or particular in their demand for food and an increased portion of our food is consumed away from home. What is driving these trends? Can you explain this in terms of "normal goods" and "inferior goods" as defined in economic theory?
• Do these trends or the reasons for these trends create an opportunity for agriculture producers? Does they create an opportunity for agribusinesses?  Explain.

Last Updated September 5, 2010

Email: David.Saxowsky@ndsu.edu

This material is intended for educational purposes only. It is not a substitute for competent professional advice. Seek appropriate advice for answers to your specific questions.

E-Mail:sswandal@ndsuext.nodak.edu
Published by Agricusiness and Applied Economics
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