Lesson Notes By Weeks and Term v3 - Senior Secondary 2
Principles of Supply
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Principles of Supply
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Subject: Agricultural Science
Class: Senior Secondary 2
Term: 3rd Term
Week: 2
Theme: Agricultural Economics And Extension
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state the law of supply. list the factors that affect supply;Movements along the supply curve and the shift variables.
The Law of Supply states that, ceteris paribus (all other things being equal), there is a direct or positive relationship between the price of a commodity and the quantity supplied.
This means that: As the price of a good increases, the quantity supplied by producers generally increases. As the price of a good decreases, the quantity supplied by producers generally decreases.
Explanation: Producers are motivated by profit. When the market price for an agricultural product (e.g., yam, rice) rises, it becomes more profitable for farmers to produce and sell more of that product. They might dedicate more land, labour, or resources to its production, or even divert resources from less profitable crops. Conversely, if the price falls, profitability decreases, discouraging production, and farmers may reduce the quantity supplied or shift to other crops.
Example: Consider the supply of bags of maize in a local Nigerian market: | Price per Bag (₦) | Quantity Supplied (Bags) | | :---------------- | :----------------------- | | 10,000 | 100 | | 15,000 | 150 | | 20,000 | 200 | This table illustrates the Law of Supply: as the price of maize increases, the quantity supplied increases.
Supply Schedule: A table showing the various quantities of a commodity that producers are willing and able to supply at different corresponding prices over a given period. The example above for maize is a supply schedule.
Supply Curve: A graphical representation of the supply schedule, showing the direct relationship between price and quantity supplied. It typically slopes upwards from left to right.
Graphical Representation of Supply Curve: (Teacher should draw this on the board or use a chart) ``` Price (P) ^ | | S (Supply Curve) | / | / | / | / | / +---------------------> Quantity Supplied (Q) ``` The vertical axis represents the price (P) of the commodity. The horizontal axis represents the quantity supplied (Q). The upward slope indicates that as price increases, quantity supplied increases, and vice versa. This occurs when only the price of the commodity itself changes, while all other factors remain constant (ceteris paribus).
There are two types of movements: Extension of Supply (Increase in Quantity Supplied): Occurs when the price of the commodity increases, leading to an increase in the quantity producers are willing and able to supply. Graphically, this is represented by an upward movement along the existing supply curve.
Example: If the price of poultry meat increases from ₦2,500 to ₦3,000 per kilogram, poultry farmers may decide to sell more kilograms of poultry, moving from point A to point B on the same supply curve. Contraction of Supply (Decrease in Quantity Supplied): Occurs when the price of the commodity decreases, leading to a decrease in the quantity producers are willing and able to supply. Graphically, this is represented by a downward movement along the existing supply curve.
Example: If the price of cocoa beans falls from ₦1,500 to ₦1,200 per kilogram, cocoa farmers might reduce the quantity they bring to market, moving from point B to point A on the same supply curve. Graphical Representation of Movement along the Supply Curve: (Teacher should draw this on the board or use a chart) ``` Price (P) ^ | S | / P2| . B (Extension) | / P1| . A (Contraction) |/ +---------------------> Quantity Supplied (Q) Q1 Q2 ``` An increase in price from P1 to P2 leads to an extension of supply from Q1 to Q2 (moving from A to B). A decrease in price from P2 to P1 leads to a contraction of supply from Q2 to Q1 (moving from B to A). A shift in the supply curve occurs when any non-price factor affecting supply changes, causing producers to offer a different quantity for sale at every possible price.
1. Increase in Supply (Rightward Shift): Occurs when producers are willing and able to supply more of a commodity at every given price. Graphically, the entire supply curve shifts to the right (from S0 to S1).
Factors causing an increase in supply: Improvement in Technology: New, efficient farming equipment (e.g., improved tractors, irrigation systems, genetically modified seeds) reduces production costs and increases output per unit of input.
Example: Introduction of improved high-yield rice varieties leads to more rice being harvested per hectare, increasing overall rice supply in Nigeria.
Decrease in Cost of Production: Lower prices for inputs like fertiliser, labour, fuel, seeds, or animal feed.
Example: A government subsidy on fertiliser reduces farmers' expenses, allowing them to produce more yam at the same cost, thus increasing yam supply.
Favourable Climatic/Weather Conditions: Adequate rainfall, sunshine, and absence of natural disasters (floods, droughts, pests).
Example: A season with excellent rainfall and minimal pest outbreaks will lead to a bumper harvest of cassava, increasing its supply. Government Policy (Subsidies/Tax Reductions): Government grants or financial aid to producers, or reduction in taxes on agricultural inputs/outputs, lowers effective costs.
Example: A government granting import waivers on agricultural machinery or providing direct cash subsidies to poultry farmers can increase the supply of poultry products.
Expectation of Future Lower Prices: If producers expect prices to fall in the future, they might increase current supply to sell off stock before prices drop.
Example: If maize farmers anticipate a glut and lower prices after harvest, they might rush to sell their current stock, increasing present supply.
Increase in Number of Suppliers: More farmers or agribusinesses entering the market for a particular product.
Example: If aquaculture becomes very profitable, more entrepreneurs might start fish farms, increasing the supply of fish.
Improved Infrastructure: Better roads, storage facilities, and market access reduce post-harvest losses and improve distribution.
Example: Construction of new rural roads makes it easier and cheaper for farmers to transport produce like fresh vegetables to urban markets, increasing effective supply.
2. Decrease in Supply (Leftward Shift): Occurs when producers are willing and able to supply less of a commodity at every given price. Graphically, the entire supply curve shifts to the left (from S0 to S2).
Factors causing a decrease in supply: Outdated Technology: Inefficient farming methods or old equipment lead to higher costs and lower output.
Increase in Cost of Production: Higher prices for inputs such as fertiliser, labour (wages), fuel, seeds, or animal feed.
Example: A significant increase in the price of diesel (used for tractors and transportation) will raise production costs for rice farmers, leading to a decrease in the supply of rice.
Unfavourable Climatic/Weather Conditions: Droughts, floods, pest infestations, or disease outbreaks (e.g., avian flu for poultry, cassava mosaic disease).
Example: A severe drought in Northern Nigeria can devastate groundnut farms, leading to a drastic decrease in groundnut supply.
Government Policy (Taxes/Levies): Increased taxes on agricultural inputs or outputs, or removal of subsidies, increases production costs.
Example: An increase in import tariffs on animal feed ingredients could lead to higher feed prices for livestock farmers, decreasing the supply of meat and dairy products.
Expectation of Future Higher Prices: If producers expect prices to rise significantly in the future, they might hold back current supply to sell later at a higher profit.
Example: If yam farmers anticipate much higher prices during the lean season, they might store their yams rather than selling them immediately after harvest, decreasing current market supply.
Decrease in Number of Suppliers: Farmers exiting the market due to unprofitability, insecurity, or other factors.
Example: Persistent insecurity in farming communities might force farmers to abandon their farms, leading to a decrease in the overall supply of food crops. Price of Other Commodities (Substitute in Production): If the price of a substitute crop (one that can be grown on
Understanding the principles of supply is highly applicable to various aspects of Nigerian life and economy.
Farmers' Production Decisions: Farmers constantly apply these principles, even if unconsciously. When deciding what crops to plant or how many animals to raise, they consider current market prices, input costs (fertiliser, feed, labour), weather forecasts, and available technology. For instance, a farmer might increase yam cultivation if yam prices were high last season and inputs are affordable, or switch to maize if yam prices fall and maize processing is more profitable.
Government Policy and Food Security: The Nigerian government often intervenes in agricultural markets to influence supply and ensure food security. Policies like agricultural subsidies (e.g., fertiliser subsidies, Anchor Borrowers' Programme for rice), tax breaks for farmers, or investments in agricultural research (e.g., new crop varieties) are designed to reduce production costs or improve technology, thereby increasing the supply of essential food items. Conversely, export bans can decrease domestic supply if not managed carefully.
Market Dynamics and Price Fluctuations: The principles of supply help explain why prices of agricultural commodities fluctuate throughout the year. For example, during harvest seasons (e.g., tomato season in Kano), a large supply of fresh produce can lead to lower prices (a rightward shift in supply due to favorable conditions and increased quantity). Conversely, during the lean season or following natural disasters (e.g., floods affecting rice farms), a decrease in supply leads to higher prices. Consumers and traders need to understand these dynamics to plan their purchases and storage.