Price Instability in Agriculture

1. The short-run agricultural problem refers to price instability in agriculture. Prices that farmers receive for their products can (and do) vary widely from one year to the next. A primary cause of the short-run problem in agriculture is the inelasticity of the demand for agricultural products � people need to eat regardless of the price of food. Thus, price fluctuations may cause changes in specific foods that some people consume or in the quality level of the foods that some people consume, but price fluctuations do not change the underlying demand for agricultural products to any great extent. At the same time, however, a number of factors may lead to changes in the supply of agricultural products. Weather conditions, as an example cans cause wide variations in the quantities of agricultural products produced from year to year. Changes in the level of supply in a market characterized by an inelastic demand lead to disproportionate price level changes. Thus, price levels in agriculture tend to be unstable over the short-term. Fluctuations in the demand for specific foods and fluctuations in the demand for different quality levels of food shift in relation to price level changes related to supply changes in an inelastic market. Similarly, supply conditions in foreign markets where demand also is inelastic affect the demand for agricultural products produced in a domestic market. All of these complex interactions contribute to short-term price instability in agri

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