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Unformatted text preview: agricultural assets will be fixed. These have various implications for prices which are very unstable in the short run and in the long run present a declining trend. Similarly farm incomes tend to be unstable in the short run and converge in the long run though it must be noted that this is also due to extensive government subsidization of agriculture. In the short run demand in the agricultural industry is affected by the fact that it is income inelastic because of Engels law that basically states that with successive increases in income food consumption as a proportion of income declines. At this point it must be pointed out that consumption is different from expenditure unless all goods have the same price, in other words, the money a consumer spends on food (i.e. expenditure) may increase, remain stable or even decrease but his consumption will decrease as illustrated in the following diagram....
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This note was uploaded on 03/10/2011 for the course ECON 101 taught by Professor Duc during the Spring '05 term at Linfield.
- Spring '05