Principles of Farm Economics
Senior 1 · Agriculture
Principles of Farm Economics
Lesson 1 of 5
22 min
Let's begin
In the weeks after the main Irish potato harvest in Musanze and Nyabihu, lorries full of potatoes arrive in Kigali every day and the price per kilogram falls. A few months later, when stores are running low, the same potatoes cost much more. The farmers grew the same crop and the buyers eat the same meals. What changed was the balance between how much people wanted to buy and how much was on offer.
Farm economics is the study of how farmers use their scarce resources (land, labour, capital and management) to earn the best return. It starts at the market, with two laws that decide the prices every farmer receives: the law of demand and the law of supply.
Demand is the quantity of a product that buyers are willing and able to buy at a given price, over a given period. Wanting a product is not enough: the buyer must also have the money.
The law of demand: if everything else stays the same, when the price of a product rises, the quantity demanded falls; when the price falls, the quantity demanded rises. Price and quantity demanded move in opposite directions. Drawn on a graph with price on the vertical axis and quantity on the horizontal axis, the demand curve slopes downward from left to right.
Supply is the quantity of a product that sellers are willing and able to offer for sale at a given price, over a given period.
The law of supply: if everything else stays the same, when the price of a product rises, the quantity supplied rises; when the price falls, the quantity supplied falls. Price and quantity supplied move in the same direction, because a higher price makes it worth producing and selling more. The supply curve slopes upward from left to right.
The equilibrium (market) price is the price at which the quantity demanded equals the quantity supplied. At that price, everything offered is bought.
The table shows a weekly market for Irish potatoes (illustrative figures).
| Price (Frw per kg) | Quantity demanded (tonnes) | Quantity supplied (tonnes) |
|---|---|---|
| 150 | 50 | 10 |
| 200 | 40 | 20 |
| 250 | 30 | 30 |
| 300 | 22 | 38 |
| 350 | 15 | 45 |
Tip
Memory hook: "Demand Dips as price climbs; Supply Soars as price climbs." Demand and price go in opposite directions; supply and price go the same way.
Exam technique: always add the phrase "other factors remaining constant" when you state either law. Examiners expect it, because each law describes the effect of price alone.
State the law of demand.
Solution: Other factors remaining constant, the higher the price of a product, the lower the quantity demanded; the lower the price, the higher the quantity demanded.
Give three factors, other than price, that affect the supply of beans to a market.
Solution: Any three of: weather; season; cost of inputs; pests and diseases; technology (improved seed, storage); prices of other crops; government policy.
Using the potato table above, state whether there is a shortage or a surplus at 300 Frw per kg, and how large it is.
Solution: Demand 22 t, supply 38 t: a surplus of 38 − 22 = 16 tonnes.
Explain why tomato prices often collapse at the peak of the harvest season.
Solution: Many farmers harvest at the same time, so supply rises sharply while demand stays about the same. Tomatoes are perishable, so farmers must sell quickly, and the surplus pushes the price down.
The price of meat rises sharply. Explain what may happen to the demand for eggs.
Solution: Eggs are a substitute source of protein. When meat becomes expensive, some families buy eggs instead, so the demand for eggs rises.
Summary
Sources and credits
The Rwandan examples, worked examples and practice questions are written by Ganzaa.
This lesson adapts CC BY-SA material and is shared under CC BY-SA 4.0.
