Theory question 109
Basic Agricultural Economics(a)(i) Explain the law of diminishing returns. (ii) State how the law of diminishing returns affect agricultural production.
(b) Discuss how each of the following factors affect the supply of agricultural produce: (i) price; (ii) technology; (iii) weather; (iv) subsidy; (v) government policy;
Show the model answer
(a)(i) When more and more units of a variable input are added to a fixed input (e.g. land), the extra output from each additional unit eventually falls
(ii) Helps the farmer decide the best (most profitable) amount of input to use, e.g. fertilizer, labour or seed; using inputs beyond that point wastes money and may reduce output
(b)(i) Price: higher prices encourage farmers to supply more, lower prices less
(ii) Technology: improved varieties, machines and methods increase output and supply
(iii) Weather: good rainfall raises supply; drought, floods and storms reduce it
(iv) Subsidy: lowers production costs, so supply increases
(v) Government policy: support (credit, guaranteed prices, input supply) raises supply; heavy taxes, import of cheap produce or bans may reduce it
Explain the law, then the effect of each factor on supply.