Question

a. Define the demand function of a good, and then discuss the price elasticity of demand for agricultural product such as rice. b. Use a demand/supply diagram to discuss why rice farmers may not benefit from a technological improvement in producing rice.

Answer 1

The demand function of a good tells us the no of factors on which the demand of good depends and it can be represented as D_y=f(Py,Px,Y,T) where Dy is demand for good Y ,Px price of good ,Y is income of consumer,T is taste preference. Price elasticity of agriculture product is highly inelastic .If the price of agriculture good falls by 5 times you can not increase the consumption by multiple time of previous consumption and income saved from fall in price will be spent on other goods .similary if price of agriculture good rices people will not decrease consumption very much because people can not starve so there major part of expenditure will be spent on food cutting expenditure of other goods .so we can see that demand of agriculture product is highly insesitive to price change .so price elaticity of demand of agriculture product is highly insensitive .

B)with technology improvement supply curve shift from s1 to s2 and price falls prom p1 to p2 since demand curve is highly inelastic demand almosts remains same and we can see from the diagram that farmer has to take a lower price by improvement in technology hence farmer is not benefitted by improvement in technology