Additions in income leads to an addition in demand, on the other manus this does non use to all goods. Demand for indispensable trade goods such as agricultural merchandises do non increase as our income additions. This is because once we are satisfied we do non demand more. Price snap of demand is defined as the step of reactivity in the measure demanded for a trade good as a consequence of alteration in monetary value of the same trade good. Price snap of supply measures the reactivity of manufacturers to alterations in the monetary value of their goods or services.

The agricultural market is non ever predictable. Farmers are affected by alterations in the environment. This means that any little alteration in the demand and or supply of their merchandises can impact the monetary values that are paid for the merchandises greatly. The demand curve is said to be comparatively inelastic if consumers are loath to alter the measures they buy when monetary value alterations. 1, below shows an inelastic market demand. The alteration in monetary value from P1 to P2 is rather big compared to the comparatively little alteration in measure demanded from Q1 to Q2.

The demand curve for a merchandise is said to be “ comparatively elastic ” if consumers are willing to well alter the measure they demand when monetary value alterations. In other words, there is a big measure alteration for a comparatively little monetary value alteration. 2, below shows an elastic market demand. A little addition in monetary value from P1 to P2 the measure demanded changed significantly more from Q1 to Q2.

Elasticity of supply measures how much manufacturers of a merchandise alteration the measures they are willing to sell in response to a alteration in monetary value. If the alteration in gross revenues is big compared to a unit alteration in monetary value, supply is said to be elastic. 3 shows an elastic supply curve. A comparatively little monetary value addition consequences in a big addition in the sum manufacturers are willing to sell.

However if the alteration in the measure supplied is little comparative to a unit alteration in monetary value, supply is said to be comparatively inelastic. 4 shows an inelastic supply where a monetary value addition does non ensue in much of an addition in sum that manufacturers are willing to sell.

Technological promotion give manner to the usage of some replacement merchandises. For illustration ‘aspartame ‘ has made it possible for more and more consumers to exchange to saccharify free soft drink. The consequence is really bad for husbandmans who grow sugar and maize. However non all consumers will alter to aspartame overnight, it will take clip. Therefore we will see fluctuations in the monetary values of sugar and maize.

Foods that require more processing such as doing wheat into staff of life. The consequence is that more value has to be added to the wheat. Meaning the husbandman gets less from the wheat. More of the value has to be added after the farm. Therefore, we expect farm value to be less. This in consequence means that the husbandman will non acquire more for his harvests.

Perishable merchandises such as tomatoes and mushrooms require more expensive and less efficient transit. It may besides be necessary to add excess processing or to keep excess capacity perform the processing rapidly. Lettuce has to be transported really rapidly, frequently in air conditioned trucks. Shorter and less efficient channels must be used to acquire the merchandise to the shop in fresh status. Since perishable harvests needs more attention to maintain them in good status the value shoots up in the long tally.

A trade good disproportionately in demand at one clip such as Meleagris gallopavos whose gross revenues are concentrated during November and December frequently require services such as stop deading and/or storage, adding to costs.

Merchandises that must be transported for long distances, in little measures, or are hard to manage rise costs.

Part B

Farmers should be offered some signifier of subsidy at some clip to maintain them in concern. Most states would desire to be able to bring forth their ain basic nutrient so that they can feed themselves in event of crisis. Farmers have been effectual political lobbyists and have been successful at enlisting public support even though, in most industrialized states, agribusiness employs merely approximately 3 per cent of the population. Politicians seem loath to dispute husbandmans.

In UK, husbandmans are assisted through the Common Agricultural Policy ( CAP ) . This consists of a common external duty against imported groceries that compete with European green goods, and hard currency payments to husbandmans to promote them to turn certain harvests. There are besides other signifiers of support. In the instance of milk, the EU gives indirect support by puting bounds on the sums of milk husbandmans are allowed to bring forth. This reduces the supply of milk, which helps halt the monetary value from falling. The EU besides buys excess milk in spring, when more milk is produced. In general, in malice of bounds on production, the subsidy system encourages husbandmans to bring forth more than they otherwise would, and more than the European market wants to devour.

Agricultural merchandises like fresh veggies, wheat, and maizes are considered as “necessaries” in our day-to-day life and have no close replacements in the short tally. The sum consumers spend on basic groceries occupied merely a little proportion of our entire income. Demand for groceries and demand for natural agricultural trade goods like grains and soya beans which are frequently use as inputs for concluding merchandises ( derived demand ) are hence inelastic and non responsive to alterations in monetary values although alterations in supply frequently result in monetary value fluctuations in agricultural market.

However, demand and supply for manufactured merchandises will be more elastic particularly if the merchandises are epicurean, consumers require to utilize up a large proportion of their income to get them and markets exists many near replacements. When extra cost of bring forthing one more unit of end product is low and there are trim capacity and natural stuff, houses will react to alterations in monetary values and switch resources to do extra end products in order to maximise gross.

Part C.

The Common Agriculture Policy ( C A P ) is a system of European Union agricultural subsidies and programmes which represents about 70 % of the EU ‘s budget.The C A P combines a direct subsidy payment for harvests and land which may be cultivated with monetary value support mechanism, including guaranteed minimal monetary values, import tarrifs and quotas on certain goods from outside the EU. Reforms of the system are presently afoot cut downing import controls and reassigning subsidy to set down stewardship instead than specific harvest production.

The C A P is advancing sustainable agribusiness in a planetary environment. It ensures a stable supply of low-cost and safe nutrient for its population, supplying a sensible criterion of life for EU husbandmans and leting the agribusiness sector to mordernise and develop.

The way of CAP reflects strategic aims: An agribusiness that is competitory on universe markets, which respect really rigorous criterion on environment, nutrient safety and animate being public assistance, within a model of a sustainable and dynamic rural economic system

The policy has a high cost budget outgo. The CAP ‘s cost should be seen in context. The proportion of the budget used for market support for EU husbandmans is really large. The policy of hive awaying prpducts in other to modulate the market led to issues of the cost of storage, the morality of the policy when people in other parts of the universe were hungering.

The policy was in direct contrast to free trade motions outside the EU, such as the World Trade Organisation ( WTO ) , which have put force per unit area on the EU to open upits agribusiness markets to the outside world..