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Economics: Agriculture in Sa

In: Business and Management

Submitted By Revenga2010
Words 1340
Pages 6
In a free market, industry is free of government intervention and regulation. Businesses therefore have the liberty to allocate resources how they wish, and to set prices at a level preferable to them individually – so long as these prices remain realistic and competitive. They logically vary depending on the economic climate in which the business operates. In some cases businesses take advantage of the seemingly boundless market in which they operate, and as a result price fixing may occur. In such a case, intervention is acceptable as an exception to the free market concept.

The decision by grain farmers to ignore the suggestions of Grain SA to reduce production is an interesting real-world example of a market operating independently of external influences, and this essay aims to analyse and discuss the dynamics of this decision, as well as the suggestions by Grain SA.

[pic]
Supply and demand curves of grain production in South Africa. E1 and S1 represent Equilibrium and supply for 2009. S2 represents recommendation made by Grain SA to reduce production and S3 illustrates the actual increase in supply by farmers.

The graph above illustrates, to some extent, the situation discussed in the article. The problem arises with the fact that, because price elasticity of demand is very much inelastic, E3 will not actually be obtained at the new equilibrium price, with an increase in production. Sensitivity to a change in price of demand is extremely low. The market’s quantity demanded for grain will vary very slightly with changes in price because the market segment for an essential/staple good such as grain will remain very much the same. The only factors really affecting this market are decreases in yields of other essential goods, or a big increase in population.

Unfortunately for grain farmers, higher resultant yields thanks to increased production do not

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