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Unformatted text preview: insignificant producers and that most 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 subsidisation 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 may increase, remain stable or even decrease. Source: Engels Law and Curves. http://faculty.washington.edu/krumme/resources/engel.html...
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- Spring '05