a. Sketch an industry supply-and-demand graph for a hypothetical farm product (e

Question

a. Sketch an industry supply-and-demand graph for a hypothetical farm product (e.g. rice or wheat) that faces relatively price-inelastic demand because it has few substitutes. Clearly label your graph.
b. Adjust the graph to show the effects of improvements in farm technology. Explain the processes underlying these effects. You may clarify your response with hypothetical prices and quantities.
c. Using information from your graph, explain why improvements in farm technology may not necessarily be good for some individual farmers. Assume that the industry is perfectly-competitive, so that each farm in the industry faces a perfectly price-elastic demand curve.

Explanation / Answer

Supply and Demand: The Market Mechanism All societies necessarily make economic choices. Society needs to make choices about, what should be produced, how should those goods and services be produced, and whom is allowed to consumes those goods and services. For conventional economics the market by way of the operation of supply and demand answer these questions. Under conditions of competition, where no one has the power to influence or set price, the market (everyone, producers and consumers together) determines the price of a product, and the price determines what is produced, and who can afford to consume it. Price provides the incentive to both the consumer and producer. High prices encouraged more production by the producers, but less consumption by the consumers. Low prices discourage production by the producer, and encouraged consumption by the consumers. Both incentives push the price to balance the forces of consumption (demand) and production (supply). Economists call this balance: equilibrium. This natural mechanism requires no external institution for direction (or only a minimum amount), or any altruists’ motivation by either the consumers or the producers. The supply and demand mechanism (the economic model) besides being the natural consequences of economic forces provides the most efficient economic outcomes possible. Satisfaction for society is maximized, at minimum cost. The market mechanism’s efficiency outcome is always located on the production possibility curves frontier, where all resources are fully utilized (points within the production possibility curves are inefficient by definition, since resources are not being utilized). This core model of supply and demand explains why economists usually favor market results, and seldom wishes to interfere with price. Setting minimum wages, for instance, or interfering with trade, violate the spirit of the model, and lead to inefficient outcomes. Alternative Viewpoints There are alternative viewpoints, however, that question just how efficient and natural the market mechanism is. They argue that actual markets in any society is embedded within a set of institutional rules, laws, and customs that determine how well the market works. Only by looking at actual markets and their institutional rules can efficiency be determined. They see a market as a game where the underlying rules as well as the approaches of its participants determine the outcome. The variables that matter are institutions and not only prices. Some markets work better, than others, even within the same society, but certainly they differ between countries with different rules and values. This disagreement among economist is a matter of degree. Even Adam Smith, the father of economic saw a role for government in the economy. Lassize faire (government stay out) was never seen as absolute. The Government was needed to provide some elements of the following; law and order, enforcement of private contracts and property rights, public goods such as roads and other public infrastructure, and defense from external military threats. Most economists believe these roles continue. Most economists also believe that the market is a useful tool and has a place in the economy. The real difference is the degree of faith in the efficiency of the market, and whether society should take direction from the market, or society should control and direct the market.In futures studies and the history of technology, accelerating change is a perceived increase in the rate of technological (and sometimes social and cultural) progress throughout history, which may suggest faster and more profound change in the future. While many have suggested accelerating change, the popularity of this theory in modern times is closely associated with various advocates of the technological singularity, such as Vernor Vinge and Ray Kurzweil.

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