Analyse the effects of falling costs of agricultural inputs and technological improvements in agriculture on the affordability of food
Excess supply is also known as surplus. Falling costs of agricultural inputs is a non-price determinant of market supply, under Cost of factors of production. Technological improvement in agriculture is also another non-price determinant of market supply, which is classified under Technology.
When there is a falling cost of agricultural input the factor price falls, costs of production falls, production becomes more profitable and the firm produces more food; hence the supply curve shifts to the right. An improvement in technology in agriculture also lowers costs of production, thus making production more profitable. The supply curve will shift to the right. The two situations are depicted in figure 1, where the supply curve, S1 shifts to S2 due to an increase in supply. (price against quantity demanded/supply curve)
When the quantity demanded is equal to the quantity supplied, we say that there is market equilibrium; the forces of supply and demand are in balance. There is no tendency for the price to change. However, if there is a change in non-price determinants of supply, a shift in the curve will result, and the market has to adjust to a new equilibrium.
In figure 3, the initial equilibrium is at a point a where D intersects S1, and where equilibrium price and quantity are P1 and Q1. An increase in supply due to the improvement in technology and falling cost of agricultural inputs shifts the supply curve to S2. With S2 and initial price P1, there isa move from point a to point b, where there is disequilibrium due to excess supply (by the amount equal to the horizontal distance between a and b). Therefore, price begins to fall, and as a result, a movement down S2 to point c where a new equilibrium is reached. At c, excess supply is eliminated, and there is a lower equilibrium price, P2, but a higher equilibrium quantity, Q2. This means that food has become more affordable now since there is more supply, which resulted in a change in equilibrium price, that lowered the equilibrium price of food. Hence, the effects of falling costs of agricultural inputs and technological improvements in agriculture have of food is that it lowers the market price, allowing more people to afford food now since it has become cheaper than before.