Agriculture economics

Agricultural economics is the application of economic theory in agriculture so as to obtain maximum profit from production plants and animals.

Production

It’s the creation of goods and services in order to satisfy man’s needs.

Factors of production

This is an aggregate of free gifts of nature, human capacity and all sorts of manmade aides that help in production.  The factors of production include land, labor, capital, entrepreneurship.

Land

Land refers to all natural resources used in the production   process.  It includes soil, minerals, forests, water bodies, air etc. The reward for land is rent. Land can lead to development in several ways:-

1. Its where buildings are constructed.
2. It provides soil used in agriculture for crop growing.
3. It can provide fuel in form of fire wood.
4. It is a source of all raw materials used in production such as minerals.
5. It can be taxed to provide revenue for the government
6. It can be mortgaged for loans.

Characteristics of land

1. 1. Its supply is fixed.
2. Land is a gift of nature.
3. It is geographically immobile that is, it cannot be transferred from one place to another.
4. It is occupationally mobile that is, it can be used for various purposes.
5. Land is not homogenous for example some land is fertile and another is infertile.

 Importance of land in agriculture

1. It is used for agricultural activities for example hunting, farming and fishing.
2. Land acts as a ground for waste disposal for example sewage disposal
3. Land is used for construction of industries, roads, building, etc.
4. It is a source of raw materials for example fish, water, minerals, timber etc.
5. It is a source of fuel for example coal and oil from the ground, charcoal form forests etc.
6. It is a source of government revenue since it can be taxed.
7. Land also provides beautiful scenery for tourism which is a source of foreign exchange.

Land tenure

These are rules and conditions governing the ownership of land in a specific area.

Forms of land tenure

1. Private ownership / free hold/ land lordship/ individual ownership.
2. State ownership
3. Communal ownership
4. Lease hold
5. Co-operative land tenure.

Private land ownership

This is where an individual puts action on a piece of land as his personal property by getting a title deed after registering it with government.

Advantages of private land ownership

1. Landowners can mortgage the land for a loan since he has a title deed.
2. The owner can use the land the way he likes for developed.
3. Land consolidation and planning becomes easy since what is owned by the farmer is known including the value.
4. It avoids land disputes since the land is well demarcated.
5. It acts as an incentive to farmers to improve the land.
6. The landowners can sell the land or part of it easily in case of financial constraints.
7. It safeguards against the position of the local community if land is in short supply.

Disadvantages of private land ownership

1. Leads to inequalities in wealth and resources within a society.
2. Selfish use of land can lead to environmental degradation
3. Private landowners might prioritize short-term benefits over long-term sustainability, potentially harming the environment or future generations.

State ownership of land

This is where land belongs to the state and no individual has control over it.

Advantages of land owned by government:

1. It allows fast decision making in the use of land by the state.
2. It encourages large investments on land by government like plantations, factories etc.
3. Government can run out land to raise revenue for development

Disadvantages of land owned by government:

1. People have no security over the land occupied since they can be evacuated any time.
2. Government can fail to utilize the land efficiently by awarding it to political allies.
3. It can be a source of political on-rest when people are sent away from government land.

Communal land ownership

This is where land is owned by the community as opposed to individuals.

Characteristics of communal land ownership

1. Its common in the pastoral communities of East Africa
2. Land is neither bought nor sold.
3. Every member of the community has a right to use land
4. Land is allocated to individuals by clan leaders or village elders.

Advantages of communal land ownership

1. Every member of the community has access to land irrespective of his social and economic background.
2. There is efficient use of land since abandoned land can be given to members of the community.
3. Each person can cultivate or graze on the communal land with no restriction.
4. There are no cases of landlessness.

Disadvantages of communal land ownership

1. It doesn’t give any incentives for improvement of land by the farmer.
2. There is a tendency of over stocking and over grazing leading to erosion.
3. it’s difficult for a farmer to use the land to get a loan since he has no title deed.
4. Increasing population leads to land fragmentation since children have to share their fathers’ land at death.
5. Continuous cropping may lead to destruction of soil structure.
6. it’s difficult to improve livestock since controlled breeding is hard to practice on such land.
7. Pest and disease control is very difficult since farmers are difficult to mobilize under such a system.

Lease hold on land 

Here land is given to the tenant by the state or the landlord for a specific period of time usually 49 years and 99 years.

Advantages of lease hold land ownership 

1. The tenant has security of tenure
2. The tenant can use the title secured to acquire a loan for development.
3. The tenant can rent out the land to get extra income.
4. It minimizes land disputes because of proper land demarcation
5. It encourages the growing of perennial crops.
6. The tenant is encouraged to carryout land conservation measures.

Disadvantages of lease hold land ownership 

They are the same as private ownership.

Co-operative land tenure

This is where land is owned by individuals who organize themselves into a co-operative.

Advantages of Co-operative land ownership

1. The land is used efficiently for productive purposes.
2. The co-operative organization can use the land as security to acquire a loan
3. Group ownership of land is a source of security.
4. There is collective work on the land which leads to high production.
5. Members can share profits and losses that are made.

Disadvantages of Co-operative land ownership

1. Individuals cannot easily get loans for production
2. Decision making is difficult as far as usage of land is concerned.

Land reforms in Uganda

This is an organized action designed to improve the structure of land tenure and land use.

Examples of land reform

1. Land consolidation
2. Land registration
3. Land re-distribution
4. Settlement and resettlement schemes.

Objectives of land reforms in Uganda

1. Achieving high levels of output through security, incentives and investments.
2. Achieving flexibility of farming patterns to meet changing natural market demand.
3. Increasing productivity of both land and labor.
4. Achieving effective utilization of national land resources which can include settlement of people on unused land and introduction of irrigation.
5. Encouraging production from the market as opposed to subsistence
6. Encouraging conservation and improvement of land.

Settlement and resettlement skills

Reasons for settlement and resettlement schemes

1. To ease population pressure by removing people from highly populated places to those with sparse population.
2. To prevent pest and disease attack e.g. removing people from places infested with tsetse flies.
3. Increase land for agricultural production by removing less productive people from the land.
4. To facilitate mechanization of availing more land to the people.
5. To settle the landless people who may become a problem within the population.
6. To resettle displaced people who might have been displaced by natural calamities and political insures.
7. To encourage self-employment to people after being given land.
8. To resettle unemployed people so as to reduce rural-urban migration.
9. To carryout research in agriculture activities in resettlement schemes.
10. Train youth in improved methods of farming so as to improve their welfare.

Land registration

This is where a farmer comes to an agreement with government over the ownership and use of land through the acquisition of land title deed.

Features of a land title deed

• District and county where the land is located
• Block and plot number of the land
• Size of land in hectares
• Registrar of land tittle signature
• Sketch of shape of land
• Occupants Name and address
• The title instrument number
• Date of issuance of the title deed
• Stamp seal mark of the land office
• Chronology of transfer from the first owner to the current occupant

Importance of land registration

1. The land owner has security of tenure hence can develop the land.
2. He can use the land title to obtain loans.
3. Land owner can easily rent out land to get extra income.
4. It minimizes land disputes because of proper land demarcation
5. It encourages land development through establishment of perennial crops
6. Land owner is encouraged to carryout soil conservation measures in order to protect his land.
7. It is easy to sale or transfer the ownership of land.

Land Adjudication

This is the process of the final and authoritative determination of the existing right and claims of people to land and subsequent issuance of the legal ownership documents or title deed by the land registrar

Benefits of land Adjudication

• It settles land disputes since it’s the final and authoritative way of determining the existing claims of people to land
• It aids surveying and takes measurements, description and recording of land details used in land registration
• It facilitates registration, transfer of interest and allocation of land in areas where land is not owned by any authority or person
• It helps in compilation and maintenance of a list of rates of compensation payable in respect of crops, buildings of a non-permanent nature and any other thing that may be prescribed.

Land consolidation in Uganda

This is the pooling of small pieces of land to form a large and more productive land when put together.

Steps in land consolidation

1. Establish land ownership
2. Measurement of the plot to be consolidated in order to establish their size.
3. Describing the nature of the fragment
4. Valuing the fragments to be consolidated
5. Recording each fragment of land for further consideration
6. Issuing of the title for the consolidated land or fragments.

 Advantages of land consolidation

1. Saves time that could have been wasted moving from plot to plot during farm operations.
2. Makes supervision of farm operations easy and less costly since they are in one place.
3. It encourages mechanization on a farm since the land is big enough which makes the practice economical.
4. Agricultural production is increased due to the size of the land.
5. It’s easier to provide extension services on the consolidated land.
6. Theft of farm produce is reduced due to improved supervision.
7. Transport costs of the produce from the garden are reduced since all products are in one place.
8. It’s easier to control pests and diseases on the farm.
9. It’s easier to carry out soil and water conservation measures.

Disadvantages of land consolidation

1. It may make people landless.
2. It may cause political unrest among the population
3. It’s a very costly exercise since each fragment is of a different value.

Land fragmentation

This is where agricultural farm land is split into small plots of different places belonging to one farmer.

Causes of land fragmentation in Uganda

1. An increasing population in the country making land to be scarce.
2. Traditional system of land inheritance where sons share the fathers’ land upon his death.
3. Limited income among the farmers which forces them to buy small affordable plots.
4. Farming systems like shifting cultivation which allows farmers to move from place to place.

Effects of land fragmentation

1. It’s difficult to supervise all plots effectively.
2. Large scale/commercial farming is not possible
3. Farmers fail to secure land title deeds.
4. Farmers fail to access social services such as road, water for irrigation etc.
5. Farm planning is difficult due to the small size of the fragments.
6. It encourages low agriculture production.
7. Theft of farm produce is common due to reduced supervision.
8. Agricultural mechanization is expensive due to the small size of the plots which are scattered.
9. It’s difficult to offer agricultural extension services on such scattered plots.
10. It’s difficult to carry out soil conservation measures due to the distance involved.
11. Pest and disease control on the fragments is difficult.
12. It’s difficult to control grazing since farmers have small plots that are prone to overstocking and overgrazing.

 Capital

It’s a stock of assets which are meant for the production of other assets.

Types of capital

1. Fixed capital / Real capital: this includes land, building, fences, and machines, tools, livestock and crops in the garden.
2. Working capital: this is money or materials used in day to day running of the farm business e.g. fertilizers, fuel, seed etc.
3. Private capital: these are assets owned by individuals
4. Social capital: these are assets that are owned by the state on behalf of the citizens e.g. roads, schools, hospitals, gov’t farms etc.

Source of capital for agriculture

• Personal savings or undistributed profits of the owners
• Borrowing from relatives and friends
• Borrowing from banks, financial intermediaries, or by selling bonds
• Borrowing from non-bank   financial intermediaries   like the housing finance companies,   insurance companies
• Selling equity shares to investors, such as friends, family, angel investors, venture capitalists, or corporations
• Retained earnings, which are the profits that are reinvested in the business instead of distributed to the owners
• Using debentures by companies in order to raise capital from the public.
• Loans from international financial lending   institutions for example I.M.F and World Bank.
• Through gambling and national lotteries.
• Through donations and grants.
• Through the sale of government securities to the public for example treasury bills and bonds in case of public enterprises.

Loans

A loan is a sum of money that is expected to be paid back with interest.

Interest is money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

Reasons for high interest on short-term loans

• They yield less interest for lenders.
• They carry a higher risk of loan default.
• The interest repayments are spread out over a shorter period, so lenders charge higher rates to make a profit.

Agricultural credit/loan

It is financial assistance given to farmers either in cash or kind that to be repaid at an agreed interest and time/loan to farmers to aid in agricultural production.

 Types of agricultural credits

• Short term credit: usually less than a year used to purchase farm supplies, payment of salaries etc.
• Intermediate /medium credit for a period of 1 to 5 years: usually for purchase of machine, and improvement of farm houses and fence.
• Long term credit beyond 5 years: for purchase of say land.

Importance of agriculture credit

• It allows farmers to finance profitable activities from the farm.
• It encourages the farmer to develop a sense of saving.
• It increases capital development on the farm in form of buildings, fences etc.
• It allows a farmer to finance big investments beyond his incomes.
• It encourages better farming techniques in agriculture
• It can lead to improvement of the standard of living amongst farmers.

Sources of agriculture credit in Uganda

1. Commercial banks like Stanbic, DFCU
2. Co-operative organizations
3. Individual money lenders
4. farmers organizations i.e. Uganda National Farmers Organization (UNAFA)
5. International bodies like International Fund for Agriculture Development, Food and Agriculture Development, International Monitory fund.
6. Development banks like UDB, EDB.
7. Marketing board, Uganda Tea Board, Central Bank of Uganda.

 Problems encountered by Ugandan farmer in the use and repayment of credit

• High interest rates charged.
• Short grace period which doesn’t allow the farmer to realize the borrowed money.
• Poor loan supervision among the loan providers giving room for defection.
• Crop failure and animal death due to calamities.
• Theft by farm employees
• Price fluctuation of agricultural product.
• High taxes.
• Natural hazards such as floods, pests and disease outbreak.
• Inflation which increases the costs of inputs.
• Fall in demand of the products.
• Unplanned loans.
• Lack of proper enforcement.
• Uncertainties such as sickness and death of a farmer.
• Improper record keeping.
• Poor farm management skills.
• Political interference where a farmer may take the loan advanced to be a political payment or reward.

Steps taken by credit institutions to overcome credit problems

• Educating farmers to promote their knowledge of the use of credit.
• Proper supervision of farmers
• Ensuring flexibility in loan repayment collection
• Reduction of interest rates
• Encourage frequent borrowing for farmers to learn financial literacy
• Send remainders of debt collections

Reasons why agricultural credit scheme has not been very successful in Uganda

• High interest rate
• High financial illiteracy level of farmers.
• Unstable weather
• Insecurity in some area
• Price fluctuation
• Poor market
• Dishonesty among borrowers
• Lack of security/collateral
• Corruption of officials
• Political interference
• Misallocation of funds

Measures that ensure effectiveness of agriculture credit

1. Provision of extension services / education to farmers on how to use loans.
2. Improvement of loan supervision to ensure prompt payment.
3. Improving loan recovery program by encouraging part repayment over a period of time.
4. Improving staff training for effective co-ordination with farmers.
5. Provide farmers with inputs at fair prices for easy repayment.
6. Provide farmers with loans in kinds like fertilizers, pesticides, improved seeds etc.
7. Organize marketing of farmers produce at fair prices.
8. Give loans to farmers in time or at the correct time to reduce risks.
9. Give adequate grace period to allow loan payment to take place easily.
10. Charge fair interest rates that can be met by the farmers.
11. Help farmers to identify viable projects for investment.
12. Lengthen repayment periods.

Advantages of channeling credit through farmers’ organizations/ cooperative

• Credit easily accessed by farmers.
• Guaranteed funds to the farmers.
• The organization can easily follow up the funds.
• Financial training from farmers’ organizations is easily acceptable.

Disadvantages of channeling credit through farmers’ organizations/ cooperative

• Lack of skill
• Political interference
• Corruption
• Farmers’ organization often provide short term and not long term loans.

Reasons why a farmer fails to access credit

• Lack of collateral/security
• Bureaucracy of lending institution
• Illiteracy of farmers
• Corruption from lending institution that may require a bribe first.
• Fear to undertake the risk
• Remoteness of the farm, since most Credit institutions are located in urban areas.
• High interest rates scare away farmers.
• High lending costs scare away farmers

 Strategies to improve agricultural lending in Uganda

• Lowering interest rates
• Lowering lending cost and loan processing period
• Improve client – lenders relationships
• Liberalization of financial sector
• Implementing agricultural insurance policies to reduce lending risks.
• Enforce laws to protect borrowers’ from financial institution greed
• Financial training to the farmers.
• Flexible repayment schedule
• Group lending to reduce risks and supervision costs.

Agricultural subsidy

This is an incentive given to the farmers usually in form of reduced prices by the government.

Importance of subsidy scheme in agricultural production

• Stabilize price of agricultural products
• Supplement farmers’ income
• Ensure that the domestic food supply is secure.
• Protect farmers from excessive loss in case of calamities

Labor

This is human effort both manual and intellectual directed towards the process of production.

Classification of labor

1. Skilled labor: this is where people perform jobs in which they have training i.e. teacher teaching, doctor treating
2. Semiskilled: this is where a person performs a particular job where he has no training but has some knowledge about it or experience.
3. Unskilled labor: this is labor provided by people who are not trained at all in such a field.
4. Family labor: this is labor provided by family members like children wives, in agriculture work.

 Productivity and efficiency of labor

Productivity of labor: refers to output produced per unit of Labor employed in a given time.

Efficiency of labor: refers  to the measure   of  quality  and  quantity  of output  a unit  of  Labor can produce  in a given  time.

How to improve efficiency and productivity of agricultural labor

Efficiency of labor is the measure of output per person per hour / time

Labor efficiency can be improved by

1. on job training
2. effective supervision/management
3. encouraging specialization
4. providing incentives such as attractive salary
5. improving technology
6. timely payment of wages
7. provision of job security
8. division labor among employees
9. favorable climate/temperature
10. maintaining good health of workers

Labor force

This refers to economically active people between 15-65yrs of age excluding students, house wives and disabled.

Labor supply

This is the number of hours worked / period of time.

Factors affecting labor supply in agriculture

1. Health conditions of the workers: healthy workers are able to work long hours compared to sickly worker
2. Motivation in terms of salaries and allowances.
3. Good working conditions such as housing, transport and health allowances attract many laborers.
4. Population size: a high population leads to provision of labor e.g. china
5. Retirement age: high retirement age guarantees a high labor supply.
6. Immigration and emigration (increases or decrease labor)
7. Labor mobility: high labor mobility leads to high labor.
8. Working time: as number of working time increases supply of labor also increases.
9. Strength of trade unions: these can reduce the number of people employed by fixing a minimum wage.
10. Nature of work: heavy and risky work attracts fewer laborers.
11. Level of education and skills: highly skilled jobs have fewer workers
12. Political stability: a stable country has more people willing to work than unstable country.
13. Government policies such as minimum age of a laborer and minimum wage may reduce the number people employed
14. Attitude toward agriculture
15. Level of advertisement of agricultural work
16. Rural-urban migration reduce supply of labor on the farms

 Labor mobility

This is the ease with which labor can move from one place to another (geographical mobility) or from one job to another (occupation mobility)

Factors affecting labor mobility in agriculture

1. Limitations in skills e.g. it’s hard for a sweeper to do doctor’s work.
2. Time required for training: along training period reduces the rate at which such people can join that occupation.
3. Racial differences: in some countries certain jobs are reserved for a particular race.
4. Trade unions: workers can use collective effort to bargain for higher wages and reduce entry of others in employment.
5. Transport: poor transport hinder movement of people from place to place.
6. Security: poor security can affect the acquisition of jobs in particular areas.

Wages

A wage is a monetary reward to Labor for the services it renders in the production   process in a given time.

• Nominal (Money) Wage. This refers to the wage paid to the worker in monetary terms in a given time for example 50000/= paid to the worker per week.
• Real Wage. This refers to the basket of goods and services that a nominal wage can purchase in a given time.

• Reserve wage.  This refers to the minimum   wage below which the individual   cannot   accept a given job offer.

 Methods of wage determination in Uganda

1. Collective bargaining. This refers to round table negotiations   between the representatives    of the trade union and the   aimed at improving   wages and other working   conditions    of the workers.   The stronger the higher the wage and the weaker   the trade union, the lower the wage
2. Government wage determination. This is where the government sets the wage which is to be paid to the employees by the employers.    This can either be a minimum wage or maximum   wage.

(a) Minimum wage legislation (wage floor). This is where the government sets a wage above the                               equilibrium wage below which the employer is not allowed to pay the workers.   This is done to protect the                     workers from being exploited by the employers.

(b) Maximum wage legislation (Wage ceiling). This is where the government sets a wage below the                          equilibrium wage above which the employer is not allowed to pay the workers.   This is done to protect the                   employers from being exploited by the workers, especially through their trade unions.

3. Piece rate. This is where wages are paid according to the amount of work done by the employee for example 10,000/= for 2000 bricks made.   This is common with unskilled   Labor.
4. Time rate. This is where wages are paid to employees according to the number of hours worked for example 1000/= per hour, 1O, 000/= per day or 500,000/- per month.   This is common with skilled Labor.
5. Signing contracts between employers   and employees.    In this case, contracts are signed which specify the wage to be paid to the employee for a given time.
6. Wage leadership. This  is where  small  firms  set their  wages  following the  wages paid  by  large firms  to  their  workers.     Therefore   large  firms  determine   the  wage  which is  to  be  paid  to  the workers  by small  firms.
7. Market forces of demand and supply of Labor. This is where the wage paid to the employees   is determined by the market forces of demand and supply in the Labor market.
8. Individual bargaining.  This  is where  individual   workers  bargain  with  employers   the  wage  they are supposed  to be given  in a given  time.

Note

(a)  Wage freeze.  This  is where  the  government   directly  and deliberately   keeps  down  the wages  paid to  the  workers   for  some  time  to  check  on  the  aggregate   demand   and  control   inflation   in  the economy.

(b)  Wage restraint. This is where the government   indirectly   influences   private   employers   and trade unions  to keep  down  the  wages  paid  to the workers  to check  on aggregate   demand   and  control inflation  in the economy.

Methods of wage payment

(a)  Sliding scale method (Wage index system).  This is where wage payment is related to the cost of living.   Workers are paid more if the cost of living is high and are paid less if it is low.

(b) Bonus system (Wage drift).   This  is  where  workers   are  paid  extra  pay  for  the  work  done  in addition  to their normal  pay rate  for the minimum  work  they are supposed  to do.

(c) Payment in kind.    This  is  where   a worker   is  paid  in terms  of  goods   for  the  work   done   for example  giving bunches  of bananas  to those working  in a banana  plantation.

(d) Time rate system.  This is where a fixed wage is paid to a worker after working for a given time for example a month, a week etc. OR .This is where a worker is paid a fixed wage according to the number of hours the worker allocates to the job.

 Causes of wage differences among agricultural workers

1. Differences in the levels of education. The  higher  the  level  of  education,   the  higher   the  wage paid   to  the  worker   and  the  lower   the  level   of  education,    the  lower   the  wage.   This   is true especially   in public service where workers are paid basing on the salary scale.
2. Differences in skills and experience.  Highly   skilled  and  experienced   workers   receive   higher wages  than  their  counterparts   doing  the  same job  for example  a senior  teacher  or  engineer   earns more  than a newly  qualified  teacher  or engineer.
3. Differences in the bargaining power between employers and employee’s (Trade unions) trade unions.  Workers in trade unions with strong bargaining power are paid more than those in trade unions with weak bargaining power.
4. Differences in the cost of living. In areas where  the cost of living  is high,  the workers are likely to be paid  higher  wages  than  where  the  cost  of  living  is  low. For example urban worker are paid higher salaries compared to those in rural areas.
5. Differences in the nature of the job (that is temporary or permanent). Workers employed for temporary jobs or contracts   are paid higher wages than those employed in permanent jobs.
6. Differences in working conditions. Worker in risky jobs such as mining are paid higher wages as compared to those employed safe jobs.
7. Differences in job status and responsibilities. Workers    in  high    positions     with    more responsibilities are  paid  higher  wages  than  those  in lower  positions   with  fewer  responsibilities e.g. a manager  is paid more  than the cleaner  working  in the same organization.
8. Differences in elasticity of supply of Labor. Labor that has inelastic supply is paid a higher wage as compared   to Labor with elastic supply.   For example   skilled   Labor is paid higher wages than unskilled Labor.
9. Differences in demand for products. Labor involved in the production of the product with high demand is paid a higher wage as compared   to Labor involved in the production   the product with low demand.
10. Differences in the health conditions. A worker who is strong  and  healthy  has  the  ability  to do more  work  hence  earning  more money  than  a weak  and sickly  worker  especially   under  piece  rate system.
11. Government policy. The government can deliberately fix higher wages for employees in certain sectors and low wages for employees in other sectors. This creates wage differences among workers.
12. Differences in mobility of Labor. Labor which is highly mobile is likely to earn more than Labor which is immobile.
13. 13. Differences in sex .Generally, male workers earn more wages than their female counterparts.
14. Differences in talents. Workers with special talents earn more wages than workers who are not talented. For example musicians, footballers   etc. are paid more for their talents.
15. Nepotism. Some workers are favored with higher wages compared to their counterparts

Management / entrepreneurship

An entrepreneur is a person who undertakes the task and risk of organizing other factors of production so as to earn profits.  The reward for the entrepreneur is profit or loss depending on performance of the business.

Roles of an entrepreneur in a farm production

• provide required capital on the farm
• he bears all risks and losses
• Planning for the farm i.e. making decisions for running of a farm
• Manages the farm
• Purchase of inputs and machinery
• Marketing of produce
• Keeps farm records
• Identifies viable business opportunities

 Methods of increasing profits in Agriculture

1. Choosing correct business with less risks and uncertainties.
2. Selling produce when prices are high i.e. having good storage facilities
3. Timely planting of crops so as to benefit from the high prices that are offered at the beginning of the harvesting season.
4. Use of better techniques of production i.e. improved seeds, good breeds.
5. Processing agriculture products so as to add value hence more profits.
6. Advertising your produce so that buyers are aware
7. Grading the produce to allow fair prices for each product.
8. Parking of the produce so as to reduce transport costs and increase the profit margin.
9. Proper control of pests and diseases i.e. increase quality.
10. Proper allocation of resources to avoid over spending and under spending.

 

Costs of production

1. Fixed costs / overhead costs / unavoidable costs.

These are expenses that a farmer has to meet whether in production or not.  They include interest on loans, rent, depreciation, salaries for permanent workers.

2. Variable costs / prime costs.

These are expenses that depend on the level of output or vary with output e.g. costs for inputs (pesticides, seeds) wages for casual workers increase in output increases the variable costs.

3. Implicit cost.

These are expenses that are indirect or costs of owned resources e.g. own labor, family labor etc.  They are valued using their opportunity cost.  NB. They are not included in the calculations of profits of the farm of accounting.

4. Explicit costs

These are direct costs paid for resources / bought or hired.

5. opportunity cost

This is a cost for the best alternative foregone in making a decision e.g. if a farmer foregoes poultry farming and takes on dairy then the opportunity cost is that one for poultry.

6. Total valuable cost (TVC)

This is the total of the cost of all valuable resources used in production (price x quantity)

7. Total fixed cost

This is the value of all the indirect cost of fixed resources used in production.  Its constant at all levels of output.

8. Total costs

It’s the sum of all the fixed and variable costs at each level of output i.e. total cost will = total variable cost + total fixed cost.

9. Average variable cost

It’s the amount spent on variable inputs per unit of output, i.e.

10. Average fixed cost.

It’s the cost of the fixed resources per unit of output.

11. Average total cost

It’s the total cost of all resources (Fixed and variable) per unit of output.

12. Marginal cost

This is the change in total cost resulting from a change in one unit of output i.e. it’s the cost of producing an additional unit of output.

 

13. Marginal product.

This is output created by using one additional unit of a factor of production.

 

Cost output relationships/Production function

This is a mathematical relationship between input and output

1. Total product, TP

This refers to the total output resulting from all the factors of production (both fixed and variable)

2. Average product AP

This is the output per unit of variable factors.

 

An example of relationship between output and inputs

Fixed factors (land)	Quantity of fertilizers used (input)x	Total maize TP output (Kg) Y	Marginal product (MP)	Average product (AP)
1	1	8	0	8
	2	18	10	9
	3	30	12	10
1	4	38	8	9.5
1	5	44	6	8.8
1	6	48	4	8
1	7	48	0	6.9
1	8	46	-2	5.7
1	9	42	-4	5.5

 

Graphical illustration of the relationship between Average product, Marginal product and Total product

From the graph the following is observed.

• T.P begins by increasing, reaches maximum point B and then falls
• Marginal product   begins   by increasing    reaches    a maximum    and   then   decreases    up   to the negatives.
• Average product begins by increasing, reaches a maximum and then falls.
• When total product (TP)   is increasing   at an increasing   rate (up to point   L), Marginal   product (M.P)   is also increasing.   When   TP is at maximum M.P is zero, when   T.P is falling   M.P is negative.  Therefore M.P is the measure of the rate of change of total product.
• When average product (A.P) is increasing; M.P is higher than AP and when average product (A.P) is falling M.P is lower than A.P and when A.P is at maximum when MP = A.P.
• L is called a point of inflexion. It refers to the point below which MP is increasing and beyond which M.P is declining.   OR. It is a point below which total product is increasing   at an increasing rate and beyond which total product is increasing   at a declining rate.

From the   graph the short run input-output relationship can be explained in three stages of production: –

Stage I: The stage of increasing returns.

This stage starts from output up to the point where AP is at maximum.    In this stage   TP, MP and AP are generally   increasing.    TP is increasing    at an increasing   rate.  The ratio of the fixed factor to the variable   factor is high.  That is, the fixed factor is still underutilized by the variable factor.  MP is greater than AP. Any farm) cannot operate   in this stage because   an increase   in the Labor inputs (variable   factor) can   still lead to increase in output.

Stage II: The stage of diminishing returns.  

This is also referred   to as the optimal or economic region of production.   In this  region,  MP  and  AP  are  declining   but  MP  is  still  positive.   There is efficient  utilization of  the  fixed  factor  by  the  variable   factor  and  therefore   production  should take place  in  this  region.   In other words, a rational   producer whose aim is to maximize profits   should operate in this region.  MP is less than AP

Stage III: The Stage of negative returns.

It is also called the intensive stage. In this stage, TP, AP and MP are declining and MP is negative.   This  implies,  employment   of an  extra  unit  of  a variable factor  would  instead lead  to a decline  in the total  output.  This is due to over utilization of the fixed factor by the variable factor.  It is irrational to operate in this stage since the employment of an extra unit of variable factor leads to less output generated.

 

The law of diminishing   returns (The law of variable factor proportions)

The law states that as more and more units of a variable   are added to fixed factor (land), product first reach the maximum beyond which it diminishes.

Illustration

From the graph   marginal product increases up to the maximum point beyond which it begins to diminish

The law of diminishing returns necessitates the producers to determine the optimum level of a variable factor which can be combined with fixed factor to yield maximum output.

Economies and diseconomies of scale

Economies of scale (E.O.S) are cost advantages gained by farm/companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs.

Diseconomies of scale

These are disadvantages    accruing   to the firm of in form of increased   average   costs resulting   from over expansion of the scale of production   of the firm or industry.

Risks and uncertainties

A risk is an avoidable and unforeseeable circumstance hazard that affects the outcome of an investment and can be measured in an empirical and quantitative manner.  Since the risks are measurable, they can be insured against.

Examples of risks

1. Change in weather or bad weather which causes destruction to crop, building and animals.
2. Pest and diseases. This can cause losses in both plants and animals.
3. Fire outbreak. This can destroy property and life. This can be of farm produce and machinery yet it’s hard to predict when it will happen.
4. Strikes of workers. Some of the strikes are very destructive and lead to loss of property and life at the extreme cases.
5. Ill health. The farmer, members of his family, all the workers can fall sick which can greatly affect the production level of the farm.
6. Low crop yields. This may be caused by many factors like poor soils, natural hazards, pests and diseases, poor management etc.
7. Death of the farmer.

Guarding against risks

1. Insurance. This is the most common method of guarding against risks where the farmer insures his property with an insurance company against risks.
2. Building owners equity. This is where a farmer saves some money that can be used in case there is a risk (net worth)
3. Input rationing. Here a farmer uses less than optimum quantities of inputs to save on the amount spent on input.
4. Improving storage facilities i.e. one can lead produce and sale later
5. Choosing and enterprise with less or limited risks hence helping a farmer easily escape risks.
6. Diversification. This is where a farmer engages in more than one enterprise so that incase one fails the other may succeed and compensate the loss made.
7. Production flexibility. This is where a farmer invests inflexible enterprises that easily allow a change e.g. keeping duo purpose breeds of cattle and poultry.

Uncertainties

Uncertainty, this is unforeseeable and unavoidable circumstances or hazard that affects the outcome of an investment but cannot be measured in an empirical and quantitative manner hence cannot be insured against.

 Examples of uncertainties

1. Price fluctuations: It’s very difficult to know when the prices will fluctuate and the loss which will come out of this is extremely difficult to calculate.
2. Change in demand: The demand for agricultural products keep on changing yet the loss as a result of this is difficult to measure.
3. Change in technology. Because of rapid technological changes, machinery and farm techniques quickly become outdated.
4. Change in government policies. The government may reduce prices of commodities by covering taxes and vice versa.
5. Bleach of contract: This can happen anytime without notice and may cause immeasurable loss depending on the commodities.
6. Unavailability of labor. This may happen during planting and harvesting time yet the losses caused are immeasurable. This change in labor supply is due to a number of factors affecting it.
7. Unavailability of agriculture inputs. The supply of such inputs is affected by a number of factors therefore their scarcity once experienced can cause uncertainty.

How to control of uncertainties in agriculture

1. producing on contract
2. building owners equity
3. diversification
4. Input rationing i.e. price fluctuation.
5. flexibility i.e. easily change from type of production to another
6. Improving storage facilities.
7. Adding value of agriculture products through processing.

Specialization

This is where one engages in the production of one item where he can feature best.

Forms of specialization

1. Specialization by craft. This is where families specialize in different activities like farming, iron smith, witch craft etc.
2. Specialization by process. This is where every stage of production in a factory or an industry is carried out by a different person.
3. Regional specialization. This is where each region produces the best it can and the changes it with what it can’t produce.
4. International specialization. This is where each country produces what it can do best and exchanges it with what is produced by other countries.

Advantages of specialization

1. It’s time saving. There is no wastage of time in moving from job to job or training for different jobs.
2. High efficiency in production since the workers gains a lot of experience and skills in doing one type of work over time.
3. It enables the farmers to exploit their natural talents by concentrating on the work they can do best.
4. It helps to improve on the quality of the product. Workers   become   perfect   in carrying   out particular   tasks.
5. It helps to speed up the training process.  This is because   a worker   is trained   to carry out a particular   task in the production   process.
6. It enables workers to exploit their natural talents by concentrating on particulartasks which they can do better:
7. It encourages the use of machines at various production levels.
8. Regional and international specialization enables countries to exploit their natural resources and get what they cannot produce.
9. It increases production which helps farmers to gain from the economy scale.
10. Specialization increases economic interdependence between countries. This  is because  different countries   can  be  able  to get what  they  do  not  have  from  other  countries   through   the  process   of exchange.
11. Specialization promotes technological development through innovations and inventionsas a result of continuous   use of machines.    This leads to efficiency in production.

 Disadvantages of specialization

1. It leads to boredom. This is because performing the same task all the time becomes   monotonous which results into loss of efficiency and work dissatisfaction.
2. It is difficult to assess the individual contribution of the worker to the final product under division of labor.    This is because   many workers   contribute   in the making   of the total final product.
3. It leads to loss of craftsmanship. This is because   when the job is divided into a series of tasks, one’s skill in making a complete product is lost.
4. Specialization leads to unemployment. This  is because  when  a worker  is laid off from  a certain firm,  it becomes   very  difficult  for the  worker  to get  another  job  in another   firm which  requires different  skills.
5. It leads to unnecessary delays in case of breakdown  in one department    of the firm during   the production
6. It leads to overproduction especially when   markets   are limited.  This   leads   to wastage   of resources due to excess output which is not sold.
7. International specialization promotes over dependence of one country on other countries.  This leads   to shortage   of certain   commodities in case   there   are some   misunderstandings      among countries.
8. It increases occupational labor immobility. This is because workers concentrate on performing one task and with time may not be able to carry out other tasks.
9. It leads to loss of responsibility among workers which undermines team work.   This is because each worker is concerned about his/her own tasks.

Diversification

In Agriculture, diversification is the raising of the variety of crops or animals as opposed to one enterprise.

Advantages of diversification

1. Resources are effectively utilized in the production process.
2. Increase supply of raw materials to agro-processing industries.
3. It promotes integration of economy when byproducts of one industry are useful to other industries.
4. Leads to self-reliance of the farmer and the country.
5. Allow production of a variety of food which reduces malnutrition.
6. It reduces risks that are associated in producing one type of crop or animal.
7. It increases a variety of products produced in a country.
8. Provides employment in different enterprises.
9. It encourages the participation of many people in the production process to produce the different goods.
10. It reduces over dependence on products from one place or country.
11. Increase farm productivity and income

 Disadvantages of diversification

1. The practice is limited by inadequate capital to engage in different enterprises.
2. Limited market for a variety of products may affect diversification
3. Limited farm implements may discourage diversification
4. It’s very difficult to carry out research on a variety of crops and animals to increase their production.
5. Climate may not favor the production of various products.
6. It encourages subsistence farming which is less profitable.

 Cooperatives

This is a registered organization of people who decide to work together for mutual economic benefits.

Types of co-operatives

1. Transport co-operatives: These deal with the transport of produce either for the members or for profit from other organizations e.g. Uganda Co-operative transport union.
2. Credit savings co-operatives. These deal with savings of members money and provision of small loans e.g. Uganda Women Credit and trust fund.
3. Consumer Co-operative. These stock and sell commodities to members at subsidized prices and can also give financial assistance to members.
4. Producer co-operatives. These are concerned with the marketing of the farmer /members produce e.g. Busoga grower’s co-operative union, Masaka co-operative union.
5. Trade and craft co-operatives. These are mainly concerned with building and construction work.

Principles of cooperatives

These are the basic guidelines to co-operatives

1. Open and voluntary membership. All people are free to join or leave the co-operative without hindrance or restriction of any kind.
2. Co-operatives are run on democratic principles when electing the leaders i.e. one man one vote basis.
3. Interest and profit. The rate of return on borrowed capital should be low since the organization is not a profit making one.
4. Capital shares. The financial capital for co-operatives is raised through the selling of shares to the members.
5. Co-operation. Co-operatives must work together with other co-operative organizations in order to learn from each other.
6. Co-operatives must be neutral in politics, religion or any other bias that can affect their operation.
7. Promotion of members. All promotions to places of high responsibility must be based on merit.
8. Co-operatives must promote education for their members in order to reduce the rate of illiteracy and also increase the skills needed in running of the co-operative.
9. Continuous expansion. A co-operative must have a continuous expansion in terms of members and physical facilities i.e. building machinery.
10. Share of dividends. Dividends are shared according to the number of share one has invested.
11. Co-operatives can mobilize prices for agricultural products by buying produce during supply and selling it at times o scarcity.
12. They can increase investments for the members by buying buildings, estates, factories on behalf of the co-operators.
13. They eliminate wasteful competition and exploitation of farmers by middle men hence increasing the farmer’s profit margins.
14. They increase the bargaining power of members in the market and protect the weak ones.

Functions of agricultural cooperatives in Uganda

• Saving and credit cooperative provide savings and credit facilities in Uganda
• Produce cooperatives pool farmers for large scale farming
• They transport produce to the market and inputs to the farmers.
• The solicit for market for the farm produce
• Provide storage for farm produce
• Provide training for the members
• Pay dividends to members
• Lobby government for agricultural subsidies.
• Collective purchase lead to lower costs of inputs

Benefits of agricultural cooperatives in Uganda

1. Better marketing facilities for farmers’ products
2. Easy acquisition of cheap inputs
3. Development of leadership skill
4. Easy access to cheaper credit
5. Easy access to agricultural information and training
6. Enhancing farmers’ profits and improving quality of supplies and products.
7. Promote production because of availability of market

Problems facing cooperatives in Uganda

1. Inadequate skills of management amongst farmers which makes them incompetent in organizing co-operatives.
2. Inadequate funds to finance the work for co-operatives which limit the investments and expansion of the co-operatives.
3. Embezzlement and corruption by managers has reduced the growth of most co-operatives in Uganda.
4. Inadequate transport. Some co-operatives do not have trucks that can easily transport produce to places where there is enough market.
5. Shortage of storage facilities. Most co-operatives in rural areas do not have enough stores with facilities like freezers that can help in storing produce.
6. Fluctuating prices for agriculture produce. The fluctuation in prices more especially at the world market has affected the income for co-operatives hence their operators hindered.
7. High risks and uncertainties in agriculture. These reduce the profit margin fore co-operatives which greatly discourages the farmers.
8. Political interference. Some politicians in government have influenced the decision in co-operatives which greatly affects their performance.
9. Political Instabilities. In places where there is insurgency it’s been very difficult for co-operatives to operate.
10. Dishonesty of members who refuse to pay back the loans or sale their produce to other co-operatives.
11. A high competition from private sector which has affected the amounts of profits that can be made.

Solutions to the problems facing cooperatives in Uganda

1. More centers for training managers should be set up to equip managers with skills.
2. Refresher courses should be organized for cooperative managers
3. Co-operative should be provided loans of low interest rates
4. Constant auditing should be done so that the managers are made to be more accountable hence reduce embezzlement.
5. Self-discipline of politicians should be encouraged to reduce political interference in cooperatives.
6. Government should support co-operatives by operating the price stabilization fund in cases of low prices.
7. Members borrowing money from co-operatives should present security in order to reduce defaulting.

 Basic (fundamental) economic problems (principles)

There are three fundamental economic problems (principles).   These include scarcity, choice and opportunity cost

• Scarcity. This refers to limited supply of resources required to produce goods and services required to meet human needs.  However, because of scarcity of resources, man decides to meet some of the needs from the available alternatives by making choice.
• Choice. This refers to making right selection from the given alternatives to satisfy human wants basing on the available scarce resources. Choice is determined by the scale of preference.   The Scale of preference refers to the list of needs arranged according to the in order of priority (importance), starting with the most pressing needs. By making choice, some alternatives are left out hence opportunity cost.
• Opportunity (Real) cost; this refers to the value of the second best alternative foregone when choice is made basing the available scarce resources. For example if an individual has 100,000/= and she wants to buy two commodities X and Y whereby the price for X is 100,000/= and the price Y is 150,000/=. If he buys commodity X using all his money, she foregoes the value of commodity Y which is worth 150,000/=

 Some uses (importance/applications) of the concept of opportunity cost

1. It helps the producer in allocation of resources. That is, determining what to produce, when produce, how to produce, where to produce and for whom to produce
2. It helps consumers in making consumption choices. That is, consumers choose to buy a commodity that maximizes utility.
3. It is used in pricing factors of production. That is, the price of a factor of production must be placed at a higher level than its opportunity cost.
4. It is applied in international trade under the principle of comparative advantage in which a country specializes in the production of a commodity where it has the least opportunity cost.
5. It is used in planning and budgeting for public and private expenditures in presence of scarce resources.
6. It helps workers to make employment decision, based on the opportunity cost of leisure

Limitations of the concept of opportunity cost

1. Some factors of production are specific in that they cannot be put to alternative uses.
2. It is not applicable where costs and benefits cannot be measured in monetary terms.
3. The concept assumes perfect market which is not applicable in the real world.
4. It is not applicable in situations where factor immobility exists.

The Production   Possibility   Frontier (PPF) / (Opportunity   Cost curve)

The production possibility frontier (PPF) is a locus of points showing all possible combinations  of two commodities that can be maximally produced when all resources are fully and efficiently utilized at a given level of technology,

The PPF assumes the following,

1. Production of only two commodities.
2. Constant technology
3. Full employment of resources.
4. Constant prices of commodities
5. Perfect mobility of factors of production

The PPF above shows that all resources are used to produce two commodities X (tea) and   Y (coffee).   Along the PPF curve, there are various combinations like A,   B   and   C   each   representing   two commodities produced in different quantities or units.

• At point A, more units of Y (coffee) are produced than X (tea). And at point C more units of X (tea) are produced than Y (coffee).
• The PPF curve can be used to explain the concepts of scarcity choice an opportunity cost as follows.

 Scarcity: since resources are scarce man is forced to produce along the PPF, that is, man cannot produce beyond the PPF using the available resources and at constant technology,

 Choice: since there are so many alternative combinations to be produced along the PPF, man has to choose the appropriate combination from the given alternatives. He may decide to choose either combination at point A, B, C or at any other along PPF

 Opportunity cost: Along the PPF, if a man chooses to produce at point A and leaves out point B, then the value of the combination at point B becomes the opportunity cost.

 

Efficient production;   this is represented by all points along the PPF that is; the points along the PPF show the efficient utilization of the available resources. Points inside the curve like point S imply inefficiency in production in form of underutilization of resources. Points outside the curve like T cannot be attained using the available resources and technology.

Economic growth: this refers to the persistent increase in the volume of goods and services produced in a country in a given time. Economic growth is illustrated on PPF by the outward shift of the curve to points like T as illustrated below.

The outward shift can be as a result of the following factors

1. Improvement in technology through innovations and inventions.

Innovation refers to the improvement on the existing techniques and methods of production while Invention refers to the total discovery of new techniques and methods of production.

2. Increase in Labor force.
3. Improvement in the existing infrastructure.
4. Political stability.
5. Discovery of new resources in in the economy,
6. Increase in capital stock.
7. Improvement in entrepreneurial skills.
8. Increase in the efficiency of workers

Market concept

A market is a place where buyers and sellers can meet to facilitate the exchange or transaction of goods and services. Markets can be physical like a retail outlet, or virtual like an e-retailer

Price theory is the study of prices in the market.

Price is the sum or amount of money or its equivalent for which anything is bought, sold, or offered for sale at a given time.

OR.

Price is the amount of money which must be given up in order to obtain a commodity in a given, market at a given time.

 Types of Markets

1. Competitive (Perfect) market. This is a market where buyers and sellers have no ability to influence the price in the    Prices are determined by the market forces of demand and supply.

 Characteristics/Features of competitive market

• Large numbers of buyers and sellers in the market.
• Identical/homogenous products sold by all firms,
• the freedom of entry into and exit out of the industry or perfect resource mobility
• Perfect knowledge of prices and technology.
• No price control.
• Perfect mobility of factors of production, the factors of production are completely mobile leading to factor-price equalization throughout the market.
• Cheap and Efficient Transport and Communication
• the consumer has plenty of choice when buying goods or services

2. Imperfect market. This is a market where the buyers or sellers have ability to influence the price set in the market by either controlling supply or
3. Goods market: This is a market where goods are
4. Commodity market: This is a market where goods and services are
5. Factor market. This is a market where factors of production are For  example land, Labor, capital, entrepreneurship

Note. Factor price is the monetary reward to factors of production for their contribution in the production process. For example wages, interest, profit and rent.

6. The spot market is where financial instruments, such as commodities, currencies, and securities, are traded for immediate delivery
7. Future (Forward) market. This is a market where commodities are traded for future

 

Methods of Price determination in the Market in agriculture

• Haggling (Bargaining). This is where the buyer negotiates with the seller for the suitable price of the During bargaining, the seller keeps on increasing the price and the buyer keeps on reducing until the agreed price is reached.
• Auctioning (Bidding). An auction is a sale in which buyers compete for an asset by placing bids. The highest bidder takes the commodity.   This is method is common in fundraising especially in churches and other functions.
• Fixing by treaties (Agreements). This is where buyers and sellers come to an agreement to fix the price of the commodity.  The price remains fixed for a given time but the agreement can be renewed and prices can be changed.
• Government determination (legislation). This is where the government fixes the price of the commodity.  The government can either fix the maximum or minimum price.
• Price leadership. This is where a large and low cost firm in the industry fixes the price of a commodity which has to be followed by other small firms.  This firm normally has a large share of the market.
• Price fixing by cartels. A cartel is an organization of firms producing and selling similar products.  These firms come together and fix one price at which they have to sell the commodity to the consumers for example OPEC.
• Interaction of the forces of demand and supply. This is where the price in the market is determined by the forces of demand and supply at a point where quantity demanded equals to quantity supplied.
• Resale price maintenance. This is where the producer (manufacturer) fixes the price of a commodity at which the seller (retailers) has to sell to the final consumers. The price is usually written the commodity container. For example Newspapers, soft drinks. etc.

 Advantages (merits) of resale price maintenance

• It is time saving since it does not involve bargaining.
• It reduces unnecessary competition among sellers.
• It helps to control consumer exploitation in form of increasing prices by sellers/retailers.
• It helps to maintain price stability.
• It helps to reduce on the duplication of the products by other producers.

Influence of price on agricultural production

• When the prices of farm products are high, farmers are encouraged to produce more and vice versa.
• When prices are high, farmers get a lot of profit leading to high production and growth.
• Farmer are forced to produce products that fetch high prices
• Farmers produce products that have low prices for inputs.

Monopoly Market structure

This is a market   structure where there is a single producer   or seller of a commodity   which   has no close substitutes   or no substitutes at all, and entry of new firms in this market structure is blocked.

 Basis (Origin/Sources) of monopoly power

Monopoly power refers to the ability of the producer to   determine the price of the commodity and restrict entry of other producers from entering the market.

The factors which give rise to monopoly power include the following: –

1. Patent rights.  These are legal barriers where the products of some people like authors; musicians etc. are protected from other producers by law. The law forbids other producers or firms from producing a similar commodity. The producer is given the sole right to produce a commodity or provide a service for a certain period of time without interference from other producers.
2. Ownership of a strategic raw material. Some firms or countries may be having the capacity to control the ownership of the only raw material.  Therefore  they  become  monopolists  in the production of a certain commodity using such a raw material under their ownership e.g. middle east has the monopoly power in oil production.
3. Exclusive knowledge    of production     techniques; in this case a person or firm may possess specific and unique knowledge which may not be possessed by others in the production process e.g.  some  specialists  in  the  medical  field  whose  services  cannot  easily  be  substituted  like surgeons.
4. Long distance   between   potential    rivals.   Long distance can be the source of monopoly power among the producers of the same commodity in different localities. Each producer monopolizes the region in which his production unit is located as other producers from other regions cannot interfere due to long distance.
5. Large scale of production. The large efficient and well established firm may adopt the limiting pricing policy which aims at preventing the entry of new firms and elimination of the already existing inefficient firms by charging lower prices for the commodity in consideration. The large scale firm remains a monopolist because other firms are pushed out of the production process.
6. Protectionism (trade restrictions). This is where the government imposes tariffs and non-tariff barriers on the imported products so as to reduce foreign competition on the locally produced goods. The home producers therefore become monopolists as they are protected from foreign competition.
7. Merging of firms. This is where two or more firms producing related commodities come together to form one firm   (collective monopoly).  This can be aimed at controlling the materials, market, price of the commodity etc.
8. Product differentiation.    This  is another  form  where  the  firm  may  become  a  monopolist  by supplying a commodity that is differentiated from others by certain trade market or brands.
9. Nationalization by the government. In this case, the government can take over private individual firms and therefore it becomes the monopolist.                        .
10. Market limitation. The entry of new firms may be limited due to existence of a small market this is because they may find it uneconomical to and therefore already existing firm remains the monopolist.

11. Large capital requirements. Some firms may remain monopolist due to failure of other firms to raise enough capital to start similar businesses e.g. iron and steel industry.
12. Long period of training, Monopoly power can be created by restricting entry of new individuals by extending the training period required to join a given profession (industry).

The theory of demand

 Demand refers to a consumer’s desire to purchase goods or services and willingness to pay for them at a particular price

Effective demand refers to a customer’s desires to purchase goods and services and ability to pay for them at particular prices.

 Quantity demanded.   This is the volume of goods and services that consumers   are willing and able to buy at a given price in a given time.

Factors affecting the quantity of a commodity demanded for

1. The price of the commodity. The higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded of the commodity.
2. The nature of tastes and preferences. Favorable  tastes  and preferences  by  the consumer increase  the  quantity  demanded  of  the  commodity  but unfavorable  tastes  and  preferences decrease the quantity demanded.
3. The price of related commodities. An increase in the price of the substitute increases the demand for the commodity in question but a reduction in the price of the substitute reduces the demand for the commodity in question. For example increase in price of rice may increase the quantity of maize flour demanded.
4. Price of complements. An increase   in the price of the complement leads to a fall in the demand of the commodity in question and a fall in the price of the complement leads to an increase in demand for the commodity in question. For instance increase in the price of electricity reduces the number bulbs bought.
5. Government policy. An increase in taxes on the commodity by the government leads to a decline in quantity  demanded  of  the  commodity  but subsidization  to consumers  by  the government encourages  the consumption of the commodity and therefore quantity  demanded Increases.
6. Population size and structure. A population comprised of a big percentage of middle- and high-income earners increases the quantity demanded of the commodity   but a population with a big percentage of low-income earners leads to a fall in quantity demanded of the commodity.
7. The nature of income distribution. Even distribution of income among the consumers increases the quantity demanded of the commodity but uneven distribution of income reduces the demand for the commodity.
8. The level of the consumers’ income. This depends on the nature of the commodity, that is, normal good, a necessity or an inferior good.

• For a normal good, an increase in the consumers’ income increases the quantity demanded of a commodity and the decrease in the consumers’ income leads to decrease in the quantity demanded.
• For the necessity, an increase or decrease in the consumers’ income does not affect quantity demanded of the commodity.
• For the inferior good, an  increase in consumers’  income leads to the  decrease in quantity  demanded and  a decrease  in consumers’  income  increases  the quantity  For example a fall in customer’s income increases demand of inferior rice.

The three  situations are illustrated using the angle curve

9. Future price speculation. An expected future increase in the price of a commodity increases its current demand but an expected future reduction in the price reduces the quantity demand for the commodity with the hope of consuming more in future at a lower price.
10. Seasonal factors. In certain seasons of the year, the demand for some commodities increases or decreases e.g. in  the  rainy  season,  there   is high demand  for rain  coats  and  their  demand decreases in the dry season.
11. Religion and culture   The  demand  for pork  is low  in places  where  there  are many  Moslems   as compared  to places  where  there are many  Christians   especially
12. Sex of the consumer. Some commodities   are demanded  by a particular   sex e.g. the demand  for shirts  is likely  to be high  in places  where  there  are many  males  as compared   to females.    Also, the demand for sweets and sanitary pads is likely to be high in a girls’ school as compared to a boys’ school.
13. Marital status. For example, the demand for wedding  rings  is high  in a society  where  there  are many  married  couples  as compared  to that dominated by singles.
14. Level of education. For example,   the demand   for scholastic   materials is high in places where there are many people going to school as compared   to places where there   are few students.
15. Level of advertisement/consumer knowledge.
16. Technology: consumers prefer modern technology

Demand curve

The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time.

The graph shows that increase in price leads to reduction in quantity demanded and vice versa

Change in demand

This refers to increase or decrease in amount of the commodity bought due to changes in other factors affecting demand keeping price of the commodity constant. It involves a shift in demand curve either to the left or to the right.

A shift in the demand   curve to the right (from D₀D₀ to D₂D₂) is called an increase in demand.  It refers  to the outward  shift  in the demand  curve  caused  by the  favorable  factors  which  affect  demand at constant  price  of the commodity.   Such factors include;

1. Increase in the price of the substitute
2. A fall in the price of the complement
3. A favorable change in the tastes and preferences   of the consumer
4. Expected increase in the future price of the commodity
5. An increase in the size of the population
6. Favorable season of the commodity
7. Favorable government   policy like subsidization   of consumers
8. Increased even distribution   of income
9. Increase in the disposable   income of the consumer
10. Increase in advertisement of the commodity
11. Increase in the amount of credit facilities offered by the government to consumers.

A shift in the demand curve to the left (from D₀D₀ to D₁D₁)   is called a decrease in demand.  It refers to an  inward  shift  in  the  demand   curve  caused  by  the  unfavorable    factors  which  affect  demand   at constant  price  of the commodity.   Such factors include;

1. Decrease in the consumer’s   disposable   income
2. Decrease in the price of the close substitute.
3. An increase in the price of the complement.
4. Unfavorable   change in tastes and preferences   of the consumer
5. Expected fall in the future price of the commodity
6. A decrease in the size of the population.
7. Unfavorable   season of the commodity
8. Unfavorable   government   policy like increased   taxation of consumers.
9. Increase in income inequalities.
10. Reduction in the advertisement of the commodity
11. Withdrawal of credit facilities offered by the government   to consumers

Types of demand

1. Competitive demand. This is the demand for commodities which   serve   the same   purpose. (Demand for substitutes).   For example the demand for tea and coffee, brands of detergents, etc.
2. Complimentary (Joint) demand. This is the demand for commodities    which are used together. (Demand for complements). An increase in the demand for one commodity   leads to an increase in demand   for another   commodity.   For example   demand   for car and petrol,   camera   and films, guns and bullets, etc.
3. Composite demand. This refers to the demand for the commodity    which   is used   for several (various) purposes e.g. the demand for water, electricity.
4. Independent (unrelated) demand. This  refers   to  the  demand   for  commodities    which   are  not related  such  that  the  demand  for one  commodity   does  not  directly  affect  the demand   of another commodity.   For example demand for a car and a pen, clothes and sugar.
5. Derived demand. It refers to the demand for a commodity not for its own sake, but for its own purposes (uses).  For example the demand for factors of production.
6. Effective demand. Is the amount of goods the consumer is willing and able to buy at a particular price.
7. Elasticity of demand is the change in the quantity demanded resulting from a change in an attribute of a commodity.

Aggregate demand

Aggregate demand refers to the total demand of finished goods and service produced in an economy by both households and firms

Aggregate demand curve

A demand curve is the locus of points showing total demand of finished goods and service produced in an economy by both households and firms in a period of time. It draws on assumption that the higher the price, the lower the quantity demanded other factors remaining constant.

The factors which affect the level of aggregate demand

• The general price levels in the country: when the general price levels of goods and services are high, aggregate demand lowers and when the general price level is low aggregate demand increases.
• The general level of incomes: when the incomes of households and firms in a country are high, the demand for goods and services are high and vice versa.
• The amount of money supply in an economy: the high supply of money in the country increases the purchasing power of the households and firm raising the aggregate demand.
• The level of aggregate money demand in a country. High level of aggregate money demand reduces the purchasing power of consumers reducing aggregate demand and the vice versa.
• The supply of consumer goods and service. A limited supply of good and services force prices to increase and reduces the aggregate demand and vice versa.
• The distribution mechanism of good and services: When the distribution of goods and services is poor, the level of aggregate demand will be low and vice versa.
• The size of the population: high population increase purchasing power and aggregate demand and vice versa.
• The tastes and If the tastes and preferences are positive for particular goods and service, the purchasing power increases leading to increase in aggregate demand.
• The political climate in the country. A stable conducive political climate increase the purchasing power leading to increase in aggregate demand
• Economic climate. Stable economic climate such as stable prices increase purchasing power and therefore increase aggregate demand.
• Levels of development of the commercial sector. A well-developed commercial sector implies high levels of income leads to an increase in aggregate demand.
• Government polity on taxation and subsidization. When the tax rates in the country are high, this reduces the income of consumers leading to low purchasing power thus reducing aggregate demand.
• The expectation of inflation/speculation:– If the consumer expects high inflation in the future then the demand rises in the present such that the aggregate demand curve shifts rightward.
• Level of Advertising. The higher the level of advertising the higher the aggregate demand

Abnormal (Regressive/exceptional) demand curves

These are demand curves which violate(disobey)the law of demand which state that “the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded keeping other factors constant”. The demand curves normally slope from left to right.

 Causes of the Abnormal demand curve

1. Demand for goods (Articles) of ostentation. This refers to the demand for expensive luxurious commodities   .For example very expensive smart phones.  In this case, a further price increase leads to an increase in the demand of the commodity.     This is because consumers   want to be unique,  and they tend to show their economic    status   by demanding   for very   expensive    items   so as to impress the public

AB is the abnormal   part   of the demand   curve. Further   increase   in the price   from   0P₀ to 0P₂ leads to an increase in quantity demanded from 0Q₀ to 0Q₂.

2. Giffen good paradox. Giffen goods   are inferior   goods which take a large percentage    of the consumer’s   income such that as their prices increase, their quantity demanded   also increase and as their prices fall, quantity demand also decreases g. staple food stuffs.

ABC   is the demand curve. CB is the abnormal   part.   An increase    in the   price form 0P1 to 0P₂ leads   to an increase   in quantity demanded from OQ₁ to 0O₂.

 Future price expectation.  When the consumers   expect a future price, buy more units of the commodity   in the current period   even if the prices   are slowly.     On the other hand, when they expect future price fall, they buy less units of the commodity   even if the prices are falling slowly  hence violating   the law of demand.

3. Ignorance effect of the consumers. Some  consumers  may buy more  units  of the commodity   at high  prices   due  to  their  ignorance   about  the  existing  market       This is normally   due to persuasive advertisement sellers hence violating the law of demand.
4. Depression effect.  A depression   is an economic   situation where all economic   activities   are at low levels g. low prices, low incomes,   low investment   levels etc.   In such  situations   when  the price  of  the  commodity   reduces,  quantity   demanded   remains  low  due  to  the  low  purchasing power  of consumers  as a result  of low incomes.  This violates the law of demand.
5. Addiction (Habit) to the consumption of the commodity. This violates   the  law  of  demand   in such  a way  that increasing   the price  of the commodity   may  not  reduce  the quantity   demanded of that commodity  to a consumer  who  is addicted  to consuming  that commodity, e.g. smokers
6. High degree of necessity of the commodity. When   the commodity    is of high   degree   of necessity,   its demand remains   constant   even if its price increases   or reduces,   for example   the demand for salt.
7. Judging quality by price. Some consumers   tend to judge   quality by price.  Hence  they  tend  to buy  more  of  a commodity   whose   price is   high,  thinking   that  it is  of  high, quality.     This is common in developing countries.
8. Special seasons (occasions). For example, during Christmas seasons,   wedding   occasions   In such  seasons,  the demand  for certain  commodities   increases   with  an increase  in their  prices due to high  need for them.  For example the demand for fruits increases during Idd season.

 

The supply theory

Supply is the total amount of a given product or service a supplier offers to consumers in a given period and at a given price level.

Supply Schedule refers to the numerical   representation    showing   the quantity supplied   of the commodity    at various   prices   in a given   time.   OR. It is the table   showing   quantities    of the commodity   supplied in the market at various prices in a given time.

Hypothetical    example to illustrate   the supply schedule

Price	500	1000	1500	2000	2500
Quantity	20	25	30	35	40

• From the supply schedule above, as the price increases, quantity supplied  also
• From the supply schedule we derive the supply curve by plotting price against quantity supplied.

  Supply Curve.

This refers to the graphical representation of quantity supplied of a commodity   at various   prices   in a given time.   OR.   It is a locus of points   showing   quantity   supplied   of a commodity   at various prices in a given  time.

From the graph, the supply curve is positively   slopping that is, “it slopes upwards from left to right.

The law of supply states that “the higher the price, the higher the quantity s of product supplied and the lower the price the    lower the quantity supplied keeping other factors constant”.

 

Factors affecting quantity supplied of the commodity

1. The price of the commodity.  The higher, the higher   the quantity   supplied   and the lower the price of the commodity   the lower the quantity supplied.
2. The number of producers   of the commodity.     The  higher  the number  of producers   of  the same commodity   the greater  the quantity  supplied,  and  the smaller  the number  of suppliers,   the lower the quantity  supplied:
3. Level of costs of production.  A reduction  in the factor  prices  reduces  the cost  of production  and this  leads   to  an   increase  in supply   but  an  increase   in  the  costs   of  production discourages producers  and  this leads to a fall in the quantity  supplied.
4. Degree of availability of factor   inputs.  An increase  in the supply  of factor  inputs  in form  of raw materials   increases   quantity   supplied  of the  commodity   but  a reduction   in the  supply  of  factor inputs  reduces  the quantity  supplied  of the product.
5. Degree of freedom    of entry of firms   in production.    Free entry of firms increases   the supply of the commodity   while restricted entry of firms reduces the supply of goods.
6. Level of technology    used in production.       Use  of  better   and  improved   technology    increases quantity   supplied   but  in case  the  technology   used  is  inefficient,   the  quantity   supplied   reduces e.g. a tractor  versus  a hand hoe.
7. Nature of the working   conditions.    Favorable    working   conditions   in form of higher   wages, transport   and food allowances   etc.  motivate   workers   to  work  hard  and  this  increases   quantity supplied   of  the  product.   But unfavorable    working   conditions   encourage   workers   to become inefficient and therefore quantity supplied of the product decreases.
8. The length of the gestation   period.     This is the time taken for a commodity    to be ready   on market.         The   longer   gestation   period,   the lower   the   quantity   supplied   and   the   shorter    the gestation period, the higher the quantity supplied.
9. Goal of the firm.   A firm  that aims  at profit  maximization    may  put  less quantity   on market   and charge  a high  price   hence  reducing   the  quantity   supplied   of  the  commodity   but  for  the  firm aiming  at sales maximization,   quantity  supplied  of the product  increases.
10. Government    policy,    increasing    taxes   by   the   government on   the   producers    of   a certain commodity   increases   the cost of production   and this reduces quantity   supplied   of the product. But  subsidization    of producers   by  the  government   in  form  of  reduced   prices   for  factor   inputs increases  the quantity  supplied  of the commodity.
11. The   nature    of   the   Climate.    Favorable    climate    increases    the   supply   of   the   commodity especially    for   the   agricultural    products    but   unfavorable     climate    reduces    the   supply    of agricultural   commodities.
12. Degree of political stability of the country.   A politically   stable country encourages   investments and production    of goods   and services   hence   increasing    the supply   of commodities.     But   a politically   unstable   country discourages   the production   of goods and services hence a fall in the supply of commodities.
13. The size of the market,   the bigger the market    size, the higher the supply of the commodity   and the smaller the market size, the lower the supply of the commodity.
14. Future price   expectations.    An  expected   future  increase   in  the price  of  the  commodity    by  the producers   reduces  the  current  supply  of the commodity.   This is because they expect to sell at a higher price and earn more profits in future.  But an expected future fall in the price increases   the current supply of the commodity.   This is because the producers   want to avoid making losses by selling at lower prices in future

Change in quantity supplied

This refers  to the increase or decrease in the quantity   supplied of a commodity   due to change in its price keeping  other factors  constant.  It involves the movement   along the supply curve.

• The movement downwards    the   supply curve is called a contraction (decrease in quantity supplied). It   is   brought about       by    the    fall    in    price  of a commodity keeping  other      factors constant.
• An upward movement along the supply curve is called   an expansion   (increase in quantity supplied).     It   is   brought about by increase  in the price of the commodity keeping other      factors constant

Change in supply

Change in supply refers to an increase or decrease in supply due to changes in other factors affecting supply of the commodity at a constant price.  OR. It refers to a shift in the supply curve brought   about by the changes in other factors affecting supply at constant price of a commodity.

• A shift in the supply curve from S0 to S₁ is called a decrease in supply. It refers  to  the  shift  in the  supply   curve to  the  left  caused   by  the  unfavorable factors which  affect     supply at a constant
• A shift in the supply curve from S₀ to S₂ is called an increase in supply. It refers to the shift in the supply   curve to the right caused   by the favorable factors     which affect     supply     at    a constant

Types of Supply

1. Competitive supply.  This is where   the supply   of one commodity    leads   to a reduction   in the supply of another commodity.   For example, increasing the supply of beef at the expense of milk.
2. Complementary (Joint) supply. This refers to the situation where the commodities    are supplied together.  That is, the supply of one commodity   automatically   leads to the supply of another   e.g. beef and hides, mutton and wool.

Regressive (Abnormal/Exceptional) Supply curve

A regressive supply curve is one which the law of supply which states that “the higher the price, the higher   the quantity   supplied   and lower the lower the quantity supplied keeping other factors constant”.   It does not slope upwards from left to right.

 Examples of regressive supply curves

(a) Fixed supply curve of land in short run

From the graph above, an increase in price from OP₁ to OP₂ does not lead to an increase in the quantity of land supplied; that is; despite the increase in price, the quantity supplied remains constant at OQ₀. It a supply curve for a necessity such as salt

(b) Supply curve for Labor

From the graph, ABC is the backward bending Labor supply when the wage increases from OP1 to OP₂ Labor supply increases from OQ₁ to 0Q₂, after point B, the wage increase from OP2 to OP₃   leads to a reduction supply from OQ₂ to OQ₃

This regressive Labor supply curve is due to the following factors.

• Presence of target workers. These are workers who work only to fulfill their targets or objectives after which they abandon work or decide to work for fewer hours.  This violates the law of supply.
• High preference for leisure. As workers earn more wages, they prefer leisure to work and therefore they end up working for fewer hours.

(c) Decline in the real wage of workers due to high levels of inflation. This forces workers to work for fewer hours.

(d) Use of progressive taxation by the government. That is where the tax rate increases as the income of the taxpayer       These discourage hard work for high wage earners and are forced to work for fewer hours so as to earn a lower wage and pay fewer taxes.

(e) Speculative supply. When prices are expected to increase in future, sellers or producers put less on market even if prices are slightly increasing. This is because they are expecting to get a lot of profits in future at very high prices.                                                  ‘

(f) Supply of perishable goods. For perishables, more is supplied (put on the market) immediately after harvest. Therefore, even if prices are low or decreasing, more is supplied hence violating the law of supply.

(g) Existence of Catastrophic periods. In such periods, supply may not increase even if prices are increasing due to scarcity of commodities.

Market equilibrium

In a competitive market, the market   is in equilibrium   when   quantity   demanded    equals   quantity supplied.  This is graphically illustrated as shown below

• At high  price  OP₂  supply  exceeds   demand   and  therefore   a surplus   of  Q₀Q₂  is      When supply  is in excess,  the  producers   decrease  the price  in order  to sell  the  surplus  (excess)   and in the process  equilibrium   is restored  in the market  at point E.
• At lower  price  OP₁, quantity   demanded   exceeds  quantity   supplied   therefore   a shortage   Q₁Q₀  is created   which   forces  the  producer   (seller)   to  increase   the  price  until  the  equilibrium    point   is attained  at point E.

 

Note

• Market price refers to the prevailing (ruling) price in the market at a given time.   Market price  is  any  price  determined   by  the  buyers  and  sellers  in  the  market   irrespective    of  whether quantity  demanded  is equal  to quantity  supplied  at a given.
• Equilibrium price refers to the market price   where   quantity demanded is equal   to quantity supplied.
• Normal (natural) price refers to the long run equilibrium price established in the market after a long period of price fluctuations.
• Reserve price refers to the minimum price set by the seller below which he is not willing to sell his commodity.
• Reserve wage refers to the minimum wage set by a worker below he is not willing to work/offer services.

 

The theory of elasticity

Elasticity is the measure of degree of responsiveness of variable due   to changes (variations) in the independent variable(s).

In the theory of demand and supply, quantity supplied, and quantity demanded are said to be dependent variables while their determinants like price of the commodity are said to be independent variables.

There are two broad categories of elasticity. These include:

1) Elasticity of demand

2) Elasticity of supply

 

Elasticity of demand

This is the measure of degree of responsiveness of quantity demanded due to changes in the factors which influence quantity demanded.

Types of Elasticity   of demand

(a)   Price elasticity of demand (b) Point elasticity of demand (c)   Arc elasticity of demand (d) cross elasticity of demand (e) Income elasticity of demand

(a) Price elasticity of demand

This is the measure of the degree of responsiveness of quantity demanded due to changes in the price of the commodity.

The negative is multiplied in the formula because of the negative relationship between quantity demanded and the price of the commodity.

 Examples 1

A change in price form 10/= to 15/= lead to a reduction in quantity from 24 to 20. Calculate price elasticity of demand

Example 2

A 20% change in price of a commodity led to a fall in quantity demanded of the commodity from 40 to 20 units. Calculate price elasticity of demand.

Interpreting price elasticity of demand

(i) Perfectly inelastic demand (E_P= 0). This is when price elasticity of demand equals to zero. Here the quantity demanded does not respond to changes in price at all.

 From the graph a change in price from OP₁ to OP₂   to OP₂   leaves   quantity demanded unchanged   at 0Q₀.

(ii) Inelastic demand (0 < Ep <1)

In   this    case,    the   price elasticity of demand is greater than zero but less than one.   A big proportionate    change in price leads to a smaller percentage change in quantity demanded.

(iii) Unitary elasticity of demand

In this case, the price elasticity   of demand equals to one. The percentage change   in quantity demanded equals to the percentage change in price.  It is   illustrated    by   a rectangular   hyperbola.

 

(iv) Elasticity of demand (1 < Ep < ꝏ)

In   this   case,    the   price    elasticity     of demand is greater than one but less than infinity or is between   one and infinity.  A big percentage change in quantity demanded is due to a small percentage change in price

 (v) Perfectly elastic demand (Ep = ꝏ)

(b) Income elasticity of demand

Income elasticity of demand is the degree of responsiveness of demand of a commodity due to a change in Consumer’s income.

It is obtained as a ratio of the percentage change in the quantity demanded of a commodity to the percentage change in the customer’s income

Interpretation of Income elasticity of demand

• If YED > 0 (positive): the commodity is a normal good. The demand for normal good increase as the consumer’s income increase.
• If YED < 0 (negative): the commodity is an inferior good. The demand for an inferior good reduces as the consumer’s income increases.
• If YED = 0: the commodity is a pure necessity. The increase in consumer’s income has no effect on the quantity demanded for a pure necessity such as salt.

 Example 5

An increase in the consumer’s income from 1000/= to 1800/= led to an increase in the quantity demanded of commodity X from 20 to 30.

 

Example 6

A 10% decrease in consumers income led to an increase in quantity demanded of commodity P from 25 to 32.

(i) Calculate the income elasticity of demand of commodity P

(ii) State the nature of commodity P

P is an inferior good

Example 7

Income	Quantity demanded of commodity P
250	50
600	25

(i) Calculate the income elasticity of demand of commodity P

(ii) What is the nature of commodity P

P is an inferior good

 Determinants of price elasticity of demand

1. Level of consumers’ income. The higher the level  of consumers’ income, the lower the elasticity and the  lower  the  level  of  income,  the  higher   the  elasticity   of  demand (elastic).
2. Degree of necessity of the commodity. The higher the degree of necessity  of the commodity likes salt,  the lower  the  elasticity  of demand   (inelastic)   while  the lower  the degree  of necessity   of the commodity   the higher  the elasticity  of demand  (elastic).
3. Degree of availability of substitutes. The demand for a commodity with many substitutes tends to be elastic while the demand for a commodity   with few or no substitutes tends to be inelastic.
4. The cost of the commodity. The demand for the commodity that takes a small proportion  of the consumers’        income tends to be inelastic.  For example elasticity of demand   for a match box is inelastic.  On the other hand, the demand for a commodity that takes a large proportion   of consumers’ income tends to be elastic.
5. Habit (addiction) in the consumption of the commodity. The demand for the commodity for which the consumer   is addicted to tends to be inelastic for example a consumer   who is addicted to the consumption   of cigarettes.  On the other hand, the demand for the commodity for which the consumer is not addicted to tends to be elastic
6. Number of uses of the commodity. The demand for the commodity  that has many uses “tends to be elastic.  For example, if the unit price of electricity increases, consumers use less of it for only vital purposes for lighting:   On the other hand, the demand for the commodity   that has few uses tends to be inelastic.
7. Degree of durability of the commodity. The demand   for a durable   commodity    tends   to be inelastic.   This  is  because   even  if the price   of  such  a commodity   falls,  the  consumer   may  not demand  more  of that commodity   because  he already  has  that commodity.    On the other hand, the demand for a perishable   commodity tends to be elastic.
8. Level of advertisement for the commodity.   The   demand   for a commodity     that   is highly advertised   tends to be inelastic but the demand   for the commodity   that is not highly   advertised tends to be elastic.
9. Future price expectations. The demand for the commodity whose price is expected to decrease in future makes  its current  demand  to be elastic  but the demand  for the commodity   whose  price  is expected  to increase  in future makes  its current  demand  to be inelastic.
10. The demand for a commodity whose use can be postponed. The demand for the commodity whose use can be postponed   to a future date tends to be elastic but the demand for the commodity whose use cannot be postponed   tends to be inelastic.
11. Time period. In the short run, the demand   for  the  commodity    may   be  elastic   because   the consumers   are not  yet used  to the new  product   on  the market  while  in the  long  run  the  demand for such a commodity may be inelastic  after  the consumers   getting  used  to the product.
12. Level of consumers’ ignorance. Consumers may buy commodities at a high price when they do not know where such commodities   or their substitutes   are sold. Consumers   may  also  mistake  the increase  in the price  to be a result  of increase   in the  quality  of products   which  may  not  be the case.  Consumers’   ignorance therefore leads to low elasticity of demand of commodities.
13. Degree of convenience in obtaining the commodity. The higher the level of convenience, the lower is the elasticity of demand and the lower the level of convenience, the higher the elasticity   of demand.

 

Elasticity of supply

Elasticity of supply refers to the degree of responsiveness of quantity supplied due to changes in the factors which influence supply

Price elasticity of supply is the measure of the degree of the responsiveness in quantity supplied due to changes in the price of commodity supplied

Example 6

An increase in the price of sugar from 100/= to 120/= per kilogram lead to an increase in the quantity supplied of sugar from 30kg to 40kg. Calculate the price elasticity of supply.

Solution

Example 7

An increase in the price of commodity by 40% causes an increase in quantity supplied of sugar from 200kg to 250kg. Calculate price elasticity of supply.

Solution

Interpretation of price elasticity of supply

(a) Perfectly inelastic supply (E_S= 0).

In this case, quantity supplied does not respond to changes in price. For example, the supply of agricultural products in short runs.

(b) Inelastic supply (E_P= 0 < E_S < 1).

In this case, a big proportionate change in price leads to a small proportionate change in quantity supplied

(c) Unitary supply (E_S = 1)

In this case, a percentage change in price leads to an equal percentage change in quantity supplied

(d) Elastic supply

In this case, a small percentage change in price leads to a big percentage change in the quantity supplied.

(e) Perfectly elastic supply

In this case, at constant price, quantity supplied increases. This situation is not applicable in the real world.

Determinants   of Price Elasticity of supply

6. Cost of the higher   the cost of production, the more   inelastic   the supply   of the commodity   and the lower the cost of production; the higher the elasticity   of supply.
7. Gestation period (Length of the production process).  The longer the gestation period, the lower is the elasticity of supply and the shorter the gestation period, the higher the elasticity of supply.
8. Level of technology. The higher   the level   of technology    e.g., use   of modem    techniques    of production    the higher the elasticity   of supply while the lower the level   use of inelastic production   techniques) the lower the elasticity of supply
9. Degree of availability of factor inputs. The supply of the commodity   whose   factor inputs are readily   available   tends to be elastic but the supply of the commodity    whose   inputs   are scarce tends to be inelastic.
10. Degree of entity of firms in the production process.    Free entry   of firms   in the production process   increases   the number of producers   of the product hence elastic   supply while restricted entry of firms in the production process leads to inelastic supply e.g., the case of a monopolist.
11. Degree of factor mobility. Factor mobility refers to the ease with which a factor of production be changed    from   one   occupation/geographical       location    to   another.    Highly    mobile    factors    of production   make the supply of the commodity   elastic while immobile   factors of production   make supply inelastic.
12. Government policy   of taxation.  High taxes imposed by the government    on producers   increase the cost   of production    hence   inelastic   supply.     However, subsidization of producers by the government   reduces the cost of production   hence elastic supply.
13. Price expectation. An expected   future price fall by the producer   relative   to the current   prices makes the current supply of the commodity   elastic.   But the expected   future price increase by the producer relative to the current prices makes the current supply inelastic.
14. The nature of the product (commodity).  Durable   commodities    have   elastic   supply.     This is because   they can be stored for a long time and any increase   in price   is accompanied    by an increase in price.   On the other hand, perishable   commodities   have inelastic   supply because   they cannot be stored for a long time such that if there is an increase in price nothing can be supplied.
15. Objectives of the firm. A firm whose objective is to maximize   sales is associated   with elastic supply of the commodity   while a firm whose objective   is to maximize   profits, the supply of the commodity   tends to be inelastic.
16. Time. This can be short run or long run. In the long run supply becomes   elastic since producers have enough   time to the factors of production so as to increase output but in the supply is inelastic because   it is difficult   to change the fixed factors   of production   in order to increase supply.

 

Price discrimination (Parallel pricing)

Price discrimination is the process (practice) of selling the same commodity to different consumers at different prices by the same seller in a given period of time, for reasons not associated with costs. For example, prices of entertainment tickets at different costs for public and students or children and adults.

Conditions necessary for Price discrimination to succeed

• The commodity should not have close substitute.
• Businesses must prevent resale. Prevention of re-sale could be enforced in many different ways. For example, students can only receive student discounts with a legitimate student ID, children can easily be identified from adults.
• The market in question must be geographically distant /spatially separated in case of seats for football or entertainment such that it is easy for monopolist to charge different prices in the different marketplaces or transfer of goods from one market to another is difficult
• There should be different elasticity of demand in the different markets.
• Ignorance among customers about other markets
• The seller or producer must be a monopolist, or the market must be imperfect.
• Personal services that can be resold or transferred e.g. medical Doctor, teacher, entertainment etc.
• Product differentiation: artificial differences made on similar products by a way of branding, trademarks.
• Low transport costs also lead to monopoly power in that goods can be transferred from one market to another without affecting their prices.
• No government interference

 Forms (Basis) of Price discrimination

1. Price discrimination according to personal   income.   This is where different   prices are charged to different   income   groups for example   charging   low prices to the low-income   earners   and high prices to the rich for the same service.
2. Price discrimination according   to sex and age.  This is where different   prices   are charged   for different sexes or ages for example higher charges may be fixed on tickets for a football match for adults and lower charges for the children, lower charges on tickets a dance for females   and higher charges for males.
3. Price discrimination according to status.   Students or soldiers in uniforms   may be charged lower than other groups of people for certain services like transport and entertainment.
4. Price discrimination according     to   geographical     factors.      Price    discrimination      may    be geographical, for example   dumping   where   commodities    are sold at lower   prices   in   a foreign market as compared to the one charged in the domestic market.
5. Price discrimination according to time of service.  This is where different   prices are imposed   on consumers   when getting services   at different   times or period   e.g.  film shows   tend to be more expensive    on weekends    as compared    days, evening   dances   are more   expensive as compared   to dances organized during daytime.
6. Price discrimination according to use.  For example, during transportation, low transport   charges can be charged on essential commodities   and high transport charges for luxurious   commodities.
7. Price discrimination according to differentiation of product.    This   is where   consumers    are charged   differently   according to the class.  For example seats  in air transport,   first  class  seats  are charged  higher  amounts  as compared  to other  classes.
8. Price discrimination according to the nature   of the product.    For example, packed   commodities are charged   higher amounts as compared   to unpacked   commodities    even if they are of the same quality.

Advantages (Merits) of Price discrimination

1. Price discrimination increases   the total revenue   of the monopolist.    This is because,   output sold increases   due to the act of charging   different prices to different consumers   of similar units of the same commodity.             .
2. It helps to reduce income inequalities.      This  is because  the  rich  consumers   are  charged   higher prices  and the low income  earners  are charged  low prices.
3. It enables the low income   earners   to get essential   commodities    at fair prices e.g. medical services, transport and housing etc.
4. Price discrimination helps producers    or countries to dispose of the surplus   output through the process of dumping.  Dumping   is important   to the producer  because  it encourages   exploitation   of resources  within  the home  country  by widening  the external  market  for goods  and  services.
5. The profits earned by a monopolist   through price discrimination    can be used to expand   on the business   and to improve on the welfare of the workers.
6. Price discrimination increases   quantity   sold and consumed example for electricity, the first units are charged a high price as compared   to the extra units.   Therefore, the more units you use, the less charge you incur for the extra units.

 Disadvantages (Demerits) of price discrimination

1. Price discrimination leads to the provision of poor-quality services especially to the low-income earners.  This is because there is no competition   since it is carried out by a monopolist.
2. Price discrimination based on dumping retards the development of young industries   in a country where the commodities    are dumped.   This is because   consumers    may prefer the cheap dumped commodities   as compared   to the expensive   locally produced   commodities.
3. Price discrimination     on  the   international    market   leads   to  the   consumption   of  harmful   and expired commodities    for example  cheap  expired  drugs  or food  stuffs  sold to developing   countries by developed   countries.

 Engel curves

Engel curve describes how household expenditure on a particular good or service varies with household income

Quantity demanded for the commodity increases as household income increase

Quantity demanded for the commodity decreases as household income increase

Quantity demanded for the commodity remains unchanged as household income change

Effects of agricultural price fluctuation in Ugandan economy

• Farmers get discouraged
• Leads to fluctuation of government revenue from agricultural related products
• Leads to unemployment because people abandon agriculture
• Leads to unstable export earnings
• Unstable terms of trade since the cost of imports remain constant
• Make planning agriculture difficult leaving it to mere speculation
• Encourages rural-urban migration search of job with stable income
• Reduced production because price fluctuation discourage investment in agriculture
• Income inequality rises because some become rich others poor due to agricultural price fluctuations.
• Make it hard to pay back agricultural loans
• Make it hard for banks to avail agro based loans

Reasons to stabilize prices of agricultural products

• to stabilize incomes of farmers
• to stabilize balance of payment
• for stabilize government revenue
• to stabilize foreign exchange earnings
• to control rural-urban migration
• to minimize unemployment
• to discourage speculations in the agriculture
• to ensure stable foreign exchange rate
• to encourage investment in agriculture

Measures that can be adopted to stabilize agricultural prices

• Buffer stocks. The government should buy up part of the supply when output is in excess, store this surplus and later sells it to the consumer in times of reduced supply.
• Stabilization fund. The government through marketing boards can maintain or increase prices of agricultural products, depending on world market prices. If profits are made, they are saved and used to stabilize prices and incomes of the farmers.
• A variety of agricultural activities should be introduced e.g. crop farming, poultry, animal husbandry etc. to reduce over dependence on one or a few sources of agricultural income in a bid to stabilize farmers’ income.
• Encourage formation of cooperatives to bargain fair prices
• Introduce irrigation schemes to ensure continuous supply of agricultural products.
• Stability in prices of agriculture can also be attained by improving transport system to enable easy marketing
• There is a need to improve, develop and expand storage facilities to accommodate excess output in agriculture.
• Price control. Government should establish the minimum and maximum prices for agricultural output.
• Market expansion. Government should expand agricultural output market through economic integrations
• encourage further diversification of agriculture

Challenges encountered by government while stabilizing the price of agricultural products in Uganda

• conflicts with the policy of liberalization
• standardization of quality and quantity of the produce
• inadequate funding
• poor road and communication network
• need to process agricultural produce and extend self-life
• shortage of storage facilities
• competition from synthetic substitutes
• lack enough market for the produce
• high illiteracy rate among farmers
• subsistence production/low product quantities
• limited diversification of agricultural production
• corruption and embezzlement

 Ways of improving the marketing of farm products in Uganda

• Providing adequate market information i.e. the buyer should be informed of availability of the produce.
• Standardization of the quality and package of products.
• Improvement of transport network to enable transport of produce to the market
• Processing to increase value and lifetime of produce
• Formation of marketing cooperatives that help farmers to improve quality, source for the market and bargain for good prices
• Improving on security of the country to allow free movement of traders.
• International integration to increase market for produce
• Promoting agro-industries to provide market for agricultural produce

 Concept of the firm

• A firm is a production unit under one management which organizes resources   to produce goods and services.
• An industry is a collection   of firms dealing in related products   for example   foot wear industry plastic industry, textile industry etc.

Types of industries

1. Rooted Industries. These are industries located near the source of raw materials    e.g.  Cement industries located near lime stone rocks, sugar industries located near, sugar cane plantations
2. Footloose Industries. There are industries which can be located anywhere without considering   the source of raw materials or market.
3. Tied Industries. These are industries   located   near   the market   for their finished   products    e.g. furniture industries,   bakeries, carpentry workshops   soda industry, etc.

Objectives of the firm

1. Profit maximization. This is a major objective of the firm. The firm tries to minimize the costs and maximize the revenue the revenue in order to maximize profit. Profits are maximized at a point where marginal cost equals to marginal revenue.
2. Sales revenue maximization. The   firm  may   aim   at  increasing sales  through reduced   prices, advertisement    and  other  incentives   given   to  customers    with   the  aim  of  maximizing    the  sales revenue.
3. Good image. Some firms do not aim at profit making but to serve the community   and maintain their   reputation    especially    parastatals.    This   can   be achieved    by   fixing   low   average prices, providing quality products and services that are appropriate   to community needs.
4. Market expansion. Firms aim at getting a bigger market share as compared   to their competitors through  market  research,  supplying  good  quality  products,   advertisement   etc.
5. Long run survival. The  firm  may  operate   in  such  way  to  exist  for  a  long  time.  This   can be achieved through proper management and making proper decisions.
6. Entry limitation. Some firms are interested in preventing other firms from entering   the industry. This  is achieved  by setting  lower  prices  that make  entry  of new  firms in the-industry  un attractive. This is referred to as limiting pricing policy.
7. Employee welfare maximization. Some firms aim at maximizing    the welfare   of their workers increasing   the wage and non-wage benefits,

Survival of small-scale firms alongside large firms

As firms increase their scale of operation, they enjoy economies of large scale.  Therefore,  every firm must strive hard in order to reap such benefits.   However, some firms continue to operate   on a small scale because of the following factors.

1. Limited capital. Small firms may be limited by capital for their expansion and this makes them to remain small for a long time.
2. Limited Market   Size.  Some   firms   may   remain    small   due   to   a small   market size   which necessitates the production  of low output.   Therefore   the firm remains   small to avoid loss resulting from over production.
3. Using bi-products from large firms. Small  scale  firms  may  survive   When  they  are  using  raw materials   supplied  by large  firms. This makes them to remain in a small state despite the benefits of large production.
4. Providing personalized services. Small   scale   firms  which  provide   personal   services   and  pay individual   attention   to their  customers   like  doctors,   tailors  may  not  need  to  operate   on  a large scale if they  are to provide  standardized   services  to their customers.
5. Need for personal contact. The owners of small scale firms can easily develop personal contacts with their customers.   This  may help  the  firms  to keep  on operating  unlike  large  firms  where  the owners  may not develop  personal  contacts  with  their customers  e.g. salons.
6. Simplicity in management.   Small   scale   firms   are   easy   to   manage    that   is   there   is   easy communication    and co-ordination   within the small firm unlike large firms.
7. Beginner firm. When  the  firm  has  just   started,   it  operates   on  a  small   scale  because   time  is required  for it to expand  and enjoy the economies   of large scale.
8. Fear of diseconomies of scale. Unlike   large   scale   firms,   small   firms   do not   face   internal diseconomies   of scale and therefore, this forces them to small for a long time.
9. Production of very expensive products. Firms  engaged  in the  production   goods  of  ostentation may  remain   small  because  of the nature  of their  expensive  products   and  the need  to show  class among  their  customers.  Examples are firms dealing in sports cars, expensive jewelry   etc.
10. Flexibility in production. Small scale firms can easily change the line of  production    without wasting   much  resources   for  example   when  the  market  demand   changes,   a small  firm  does  not lose so much  as compared  to  a large  firm,
11. Production of bulky and fragile products. Small   scale   firms   dealing   in  bulky   and   fragile products   may  feel  secure  to remain  small  to avoid  risks  of over  expansion   e.g.  Firms dealing in glass making, brick making, eggs etc.
12. Fear of paying taxes to the government. Small firms can easily avoid and evade paying taxes and this makes them to operate on a small scale.

Merging (Integration) of firms

This is where two or more firms join together   to form one business   unit with the aim of enjoying economies of large scale.

Reasons (Aims/Objectives) for merging/integration

1. To expand the market in form of increased sales resulting from large production.
2. To ensure efficient management, that is,   different firms can combine   different   management skills which enable them to operate more effectively   and efficiently.
3. To reduce on the risks involved in business operations. This is because   under   mergers   risk bearing economies   of scale can be enjoyed through diversification   in production.
4. To monopolize business activities. When  a number  of firms combine  to form  one large firm, they can outcompete other  small  firms  hence  enjoying  the monopoly  power.
5. To increase employment opportunities. A number of business activities   are created due to large scale of production   hence more employment   opportunities.
6. To increase resource utilization. A combined   big  firm  can be able to raise  more  capital  in order to increase  on  the  utilization   of resources   and  produce   more  goods  and  services,   in  case  small firms have been operating  at excess  capacity.
7. To ensure reliable supply of raw materials, for example when one firm is using bi-products of another firm as its source of raw materials.
8. To increase on the profits of each firm within the merger due to the large scale of operation of the merger.
9. To ensure increased quality and quantity of output. For example, through joint research, firms can be able to improve on the quality of their products.
10. To promote specialization in production. Each   firm under   the   merger    can   specialize in producing a given product.  This increases the efficiency and output of each firm.

Factors which make it difficult for firms to Merge

1. Fear of complexity in management in form of bureaucracy
2. Fear of losing independence enjoyed by individual firms
3. Differences in aims and objectives of individual firms
4. Government policy which may be aimed at discouraging merging of firms
5. Fear of losing employment due to merging for example the managers
6. Fear of paying high taxes by one single big firm
7. Fear of losing personal contact with the clients of the firm.
8. Fear of under taking high risks associated with large scale operation
9. Fear of not achieving the optimum level of production due to a large scale of production
10. Fear of diseconomies of large scale. For example marketing and technical diseconomies of scale
11. Market potential may favor competition which forces firms to remain independent.

Advantages of merging of firms

1. It helps to expand the market in form of increased sales resulting from large firms.
2. It increases employment opportunities as a result of large scale production.
3. It increases utilization of resources hence increased output.
4. It helps to minimize unnecessary competition among firms producing related products in form of duplication of commodities.
5. It ensures reliable supply of raw materials.
6. It improves efficiency in management. This is because people of different expertise and experience are combined together under the merger.
7. It reduces the cost of advertising for individual firms.
8. It enables firms to carry out research jointly at a reduced cost.
9. It enables firms to access capital (loans) from financial institutions as a result of merging.
10. It enables the firms to share risks involved in production.
11. It enables firms to access the use of better techniques of production.
12. It increases profits of each firm due to large scale production.
13. It promotes specialization among firms which increases the level of output.

Disadvantages of merging of firms

1. It leads to over exploitation of resources.
2. It increases pollution due to the existence of the industry.
3. It leads to congestion of firms within the industry.
4. It leads to over production due to large scale production hence wastage of resources.
5. It leads to price fluctuations due to over production.
6. It leads to loss of independence of individual firms
7. It increases complexity in management due to large scale operation.
8. It leads to emergency of collusive monopoly and its associated negative implications
9. It leads to unemployment in firms when the firms use capital intensive techniques of production.

Location of firms (Industries)

This refers to the setting up of a firm in a particular area.

Factors affecting the location of firms

1. Availability of raw materials. In situations where the raw materials are bulky the firm finds it cheaper to be near the source of raw materials. For example the location of cement factory in Tororo was due to the presence of limestone rocks.
2. Availability of power supply. Industries which require a lot of power are located near source   of power,   for   example,   industries manufacturing metal   products    like   steel   rolling   mills.    This explains   why Jinja became   the industrial   town of Uganda   due to the presence   of hydroelectric power source.
3. Availability of market. Industries or firms producing   perishable   commodities   like  flowers,   bread etc. are  located  near  the market  to avoid  their  products   from  getting  spoilt  or damaged   while  in transit.  In addition, industries producing   fragile and bulky commodities   like glass and bricks need to be located near market areas.
4. Availability of transport facilities. There is need   to locate   a firm where   transport    is  readily available  and  cheap  .For example  along  railway  lines,  good  road  networks,   water  ways  etc.  This helps to minimize on the transport costs.
5. Availability of water supply. Some   firms  require   water   as  a  raw  material   in  the  production process,   for  example,   water  is used  as  an input  in  the  brewery   industry   and  it can  be  used   for waste  disproval   by many  industries.   Therefore,   it is economical   for some industries   to be located near a water source.
6. Availability of land. Land provides a site where a production unit can be established. Therefore   it is economical   for firms to be located in areas where land as available   and cheap so as to provide room for industrial expansion.
7. Availability of cheap Labor. Firms are located in areas where Labor is cheap and is in enough supply. This is true with firms which are Labor intensive.
8. Government policy. The   government     may   be   aiming    at   balanced    regional    development, employment creation,   controlling    rural urban   migration   which   may   force the government     to locate a firm in a certain area.
9. Political climate. The location of a firm is determined by political   stability (security)   of the area. This is because   a politically   stable area provides   a conducive   investment   climate which   attracts firms to be located in a certain area.
10. Availability of economic infrastructure. For example banks,   insurance companies, advertising companies   etc. may force firms to concentrate   in an area.
11. Availability of suitable climate. Firms   are located   in areas   where   the climate   is generally favorable   for their activities.   For example,   it is not advisable   to locate   a paper   industry   in a swampy area.

Localization of firms

This refers to the concentration   of firms in a particular area.

Factors which influence the localization   of firms

1. Industrial inertia. This is the tendency of the existing firms to remain established in a given area even when the location factors are exhausted.
2. Availability of ready market. The already established   firms  may  provide  market  for the incoming firms  and the new  firms may provide  raw materials   for the already  established   firms  and  therefore such firms may  decide  to localize  in one area.
3. Power supply. Availability of cheap and constant   power   supply may   lead to the concentration many firms in one area.
4. Availability of enough land. When land is available and cheap, many firms concentrate in that area because of the existence of room for expansion.
5. Availability of supply of skilled and unskilled Labor. When Labor is readily available, and in large quantities,   many firms may be established   in that area hence localization e.g. many firms are concentrated in Kampala.
6. Security and political stability. Localization of firms may be due  to constant  security  and political stability  which  attract  many  firms  in a particular   area.
7. Availability of water supply. Water   is  needed   for  industrial    purposes    in  various    ways,   for example,   it is used  an input,  for  waste  disposal,  a cheap  means  of transport   etc.  This can attract firms to concentrate   in such an area so as to minimize on production   costs.

The revenue concept of the firm

Revenue is the receipts (returns) derived from the sale of a given level of output at a given price in a given time.

Terms used under revenue

Total Revenue (T.R); this is the total amount of money the firm receives   from sale of   its output.   TR = P x Q    Where P = Price of each unit of output and   Q = total out put

Average Revenue (A.R); refers to total revenue per unit of output sold

Note:  Average revenue is the same as price under perfect competition

Marginal Revenue (MR.) refers   to the additional   revenue   resulting   from the sale of an extra unit of output.

Example

Output	TR	AR	MR
1	500	500	–
2	800	400	300
3	1000	333	200
4	1300	325	300
5	1600	320	350

 

The theory of costs

A cost in economics   refers to amount of money paid (incurred) by the firm to produce a given level of output in a given time.  Therefore, costs are expenses of the firm in the production   process.   A firm’s cost of production also includes all the opportunity   costs of producing   its output of goods and services.

Types of costs of a firm

Implicit (transfer) costs. There are costs which are not considered when calculating   profits of the firm by the accountants   e.g. costs in form of, family Labor, self-owned   inputs, etc. They are normally assumed to be zero when computing profits.

Explicit (nominal/money) costs. These are costs which are considered when calculating   profits of the firm by the accountants   e.g. costs of raw materials, hired Labor, transport costs   etc.

Note. Explicit cost can either be fixed costs or variable costs.

Fixed (Supplementary/Overhead) costs.  These    are   the   costs    incurred    by   the   producer irrespective   of the level of output.   OR These are costs which remain constant irrespective   of the level of output. For example, the cost of land, rent, building, vehicles, salaries for top management, rent.

 Variable (Prime) Costs.  These   are costs which change with the changes   in the level of output, that is; when the level of, variable costs  costs also   for example   the cost  of raw materials, wage , electricity  etc.

Total costs (TC) = Explicit costs + Implicit costs

Total costs (TC)  = Total  Fixed  costs  (TFC)  + Total  Variable  costs  (TVC)  + Implicit  costs

Assuming that implicit costs = 0

TC =TFC + TVC.

 

 

Assuming   zero implicit cost, TC = TFC + TVC.

When  output  is zero  as shown  from  the  graph,  there are no  variable  costs  (TVC = 0).  This implies that the producer   has not yet started producing    and therefore    he   cannot   incur   any   variable    cost.   Therefore    Total    Cost   = 0 + Total    Fixed    cost (TC = TFC).

 

When output increases, TVC and TC increase   by the same amount.  This is because TFC are constant at all levels of output and an increase in TC results from the increase in TVC.

 

Variation of costs in the short run

 

In the short run, there are both variable costs and fixed costs of production.    This is because some factors of production are variable and others are fixed.

 

Average Fixed Costs (AFC):   These are total fixed costs incurred   in producing   an extra unit of output in a given time.  Or these are fixed costs per unit output produced   by the firm in a given time

AFC =

 

Example 1

Given TFC = 8000/= and output = 20kg, find AFC

AFC =

 

Average variable costs (AVC) are total variable costs per unit of output produced in a given time. Or average variable costs are total variable costs incurred in producing in producing one unit of output in a given time.

AVC =

 

Example 2

Given TVC = 10000/= and output is 200kg, find AVC

 

AVC =

 

Marginal cost refers to additional costs resulting from the production of an extra unit of output in a given time

 

MC =

 

Example 3

Given that output increased from 50kg to 75kg and total costs increased from 20,000/= to 25,000/=. Calculate MC.

MC =

 

Average total cost (ATC/AC) is the total costs of production per unit of output produced by the firm in a given time. Or average total costs are total costs incurred in producing one unit of output in a given time.

 

ATC = AC =

 

Example 4

Given that TC = 400/= and output is 20 units, calculate ATC (AC)

 

ATC = AC =

 

Not that

TC = TFC + TVC;

Divide through by Q

=  +

 

• ATC = AFC + AVC

 

 

 

Numerical example to illustrate the short run variation of costs of a firm

 

Output Q	TFC	TVC	TC	MC	ATC	AFC	AVC
0	100	0	100	–	–	–	–
1	100	400	500	400	500	100	400
2	100	700	800	300	400	50	350
3	100	900	1000	200	333	33	300
4	100	1200	1300	300	325	25	300
5	100	1550	1650	350	330	20	310
6	100	2000	2100	450	350	17	333

 

From the graph, MC, ATC and AVC curves are U – shaped because of law of diminishing returns

• AVC curve lies below ATC curve because AVC is part of ATC.
• As output increases the AVC curve comes closer to the ATC curve because of the continuous fall of AFC.
• The MC curve lies below the ATC and A VC curves when they are declining and it lies above them when they are rising.
• The MC curve cuts the AVC and ATC curves at their lowest (minimum) points (points A and B respectively).
• The minimum point of the A VC curve (point A) is on the left hand side of the minimum point of the ATC curve (point B).
• The ATC curve first decreases as output increases because of the fall in A VC and AFC. After point A, the AVC curve begins to rise but the ATC curve continues to fall because of the continuous fall in AFC which outweighs the rate at which AVC is increasing.
• After point B the A TC Curve begins to rise because of the increase in A VC outweighs the rate at which AFC is falling.

 

Non-price competition  in agriculture

This  is where  rival  firms  compete   using  other  means  other  than  changing (adjusting)   the price  of the commodity.   Examples   of non-price   competition   include;

1. Improvement and maintaining the quality of the products   with the aim of promoting   customer loyalty.
2. Giving (distributing) free samples of the products   to customers.   This is mainly   used when the product is new on the market for example soft drinks, telecommunication     companies   etc.
3. Use of persuasive advertisement with catchy slogans   for example   breweries   companies,    soft drink  companies,   firms  selling  cosmetics   etc.
4. Carrying out promotional offers.  For  example   selling  the  product  at a lower  price  to customers through  sales  promotions,   giving  free training  services to customers   etc.
5. Offering gifts and prizes. For example   petrol stations   giving soap and other detergents   to their customers
6. Sponsoring sports activities like volley ball, football, cricket etc.  This is aimed at winning   and selling the product to the consumers   who are supporters   of a given sports activity
7. Supporting charity organizations by giving them household items like food, clothing,   soap etc. For example child care centers, orphanage   homes etc.
8. Carrying out trade fairs and exhibitions.  For example   firms participating    in the international trade fair at Uganda Manufacturers    Association   grounds   in Lugogo to showcase   their  products.
9. Providing after sales services.  For example   providing    transport    for those   who   buy in large quantities,   free installation   services, repairs etc.
10. Organizing consumer games  in  form  of  raffle  draws  where   a customer   buys  the  product   and enters  a draw.  The winners are given prizes for example cars, phones, domestic   appliances   etc.
11. Opening up many branches and distribution centers in form of regional distributional centers and shopping outlets.
12. Using one stop shopping centers where the customer can conveniently find all what he requires in one place.  This is common in big shopping   malls like Shoprite, Garden city.  Mazima  mall etc.
13. Offering credit facilities to customers, for example allowing   customers   to acquire   products   on hire purchase,   giving airtime on credit to their customers   by telecommunication     companies   etc.

 

E-marketing of agricultural products

It is the application of marketing of goods and services through internet.

 

Advantages of e-marketing in agriculture

• Cheap
• Has a global reach
• Enable farmers/produces and customers to access information on commodities and prices
• Fast communication
• Easy access to information

Limitations of e-marketing in Uganda

• Computer illiteracy of farmers/producers and customers
• Remotes/lack of connection
• Lack of/unsteady electricity in rural areas to enable use of computers
• Language problems
• Technology dependence: E-marketing relies on technology and the internet, which can be disrupted.
• Worldwide competition: Launching products online exposes businesses to global competition.
• Privacy and security issues: Concerns about data privacy and security.
• Higher transparency and price competition: Online platforms make pricing and information more transparent.
• Maintenance cost: Managing and updating e-marketing resources can be expensive.

 

Efficiency of a farm

Farm efficiency is the ability to achieve maximum productivity with minimum wasted effort or expense

Farm efficiency lead less wastage, more income, better resource utilization.

 

Reasons why it is necessary to assess the efficiency of a farm from time to time

• To find out whether the farm is making profit or loss
• To determine growth
• To identify weakness in order to improve on efficiency

Measures to improve efficiency on farm

• Good management through proper decision making
• Selecting proper and marketability
• Application of fertilizers to increase plant yield.
• Planting early maturing crop varieties
• Irrigation to produce crops throughout the year
• Pest control to reduce farm losses
• Use of skilled labor to produce quality products
• Use of specialized extension service
• Fencing to ensure safety of the farm
• Proper record keeping to enable proper farming
• Proper feeding of farm animals.
• Proper housing of farm animals
• Timely weeding
• Proper spacing of crops
• Castration, dehorning, and debeaking to improve farm production
• Processing of farm product/value addition

 

Budgeting

A budget is an estimate of income and expenditure for a set period of time. A complete budget is a statement that describe and specifies income and expenditure of a firm for a given period of time.

 

Importance of budgeting on a farm

1. To estimate required production resources in form of labor, capital and inputs.
2. To estimate profitability of the farm enterprise.
3. To attract funding from money lenders such as banks
4. To direct or control expenditure in the business to enable high profitability.
5. To provide basis of performance appraisal
6. To exploit idle resources
7. To set goals and provide direction to the managers of the farm.

 

Information required making a budget on a farm

• Scheduled expenditure
• Scheduled income
• Planned expansion

Steps followed when making a complete budget in agriculture

• State objectives
• List all available resources
• Estimate the size of land to estimate the number of livestock or planting materials required
• Estimate inputs and labor
• Work out estimates for the cost of inputs
• Estimate the value of expected revenue
• Estimate profit

 

Constraints in budget making in agriculture

• Lack of skill
• Illiteracy of among farmers in developing countries
• Lack of information on prices and sources of inputs
• Price instability
• Risks and uncertainties
• budget making is tedious
• limited funding sources
• Failure to follow the proposed budget

Depreciation

Depreciation is the fall in the price of a tangible asset which reduces the asset’s monetary value due to a variety of reasons like wear and tear that is caused by a prolonged use of the asset.

 

Record keeping on the farm

Farm record keeping involves documentation of vital activities that took place on the farm using record-keeping systems.

 

Importance of record keeping on a farm

• Tracking animal and worker healthy
• Ensuring tax compliance
• Tracking revenue and expenses
• Financial requirements for lenders, government agencies and insurance
• Farm planning and forecasting based on previous performance
• Enable improvements on the farming methods
• Help detect fraudulent practices on a farm
• To show economic status of a farm

Farm documents

• Documents on daily activities: records all things that happen on a farm on daily basis such as cash transactions, labor used, quantity of crops harvested and so on
• Order forms, invoices and Receipts show orders made, invoices and receipts received
• Cash book and payment receipt record book shows receipts issued from the farm
• Statement book contains a list of invoices indicating the things a farm has bought to enable payment at the end of the month.
• Inventory record which shows a list of items present on a farm at a particular time
• Yield and production record in which the various outputs of the farm are recorded
• Employment / worker recordsincluding general records, pay and hours worked, leave, superannuation and tax
• Safety reporting procedures – any incidents and injuries, including near misses. This will help you determine actions to improve and prevent reoccurrences.
• Hazardous chemicals on site and an asbestos register if there is any at your workplace.
• Registration documents for machinery.
• Testing, maintenanceand inspection details for specific types of equipment.
• Hazard identification, risk assessmentand control processes you have in place at your workplace. This is particularly useful in showing you are actively keeping your workplace safe by being proactive.
• Training and inductionsfor workers and contractors

Factors that determine the type of record to keep on the farm

• Nature of the farm i.e. livestock, poultry etc.
• Size of the farm
• Number of enterprises on the farm
• Skills and ability of the farm manager
• Number of activities on the farm e.g. irrigation, spraying etc.

Importance of warehouse receipts

• details quantity and quality of produce stored/received
• provide proof of ownership of the commodity stored
• In case of damage, the warehouse receipt may be used to claim for compensation to the producer.

Importance of inventory records of a farm

• used to calculate the value of farm assets or financial position of a farm
• Well-maintained inventory records can help farmers obtain bank loans. Lenders often require detailed information about a farm’s assets, including inventory, to assess creditworthiness.
• Provide the value of a farm in case of selling it.
• Useful for sharing the estate among beneficiaries in case of death of owner or dissolution of a cooperative.

 

A balance sheet

It is a financial statement that reports a company’s assets, liabilities and shareholder equity at a specific point in time.

 

Population economics

Population refers to the number   of people living in a certain area (region) at a given time.  The total number of people is established   by carrying out population   census.

• Population census refers to the physical counting of people in the country after a given period of time. In Uganda, population  census is normally carried out after every 10 years.

 

Under population, optimum population and overpopulation

Under population

This  refers  to the population   size where  the increase  in Labor  force  leads to an increase  in output  per capita  given  the available  resources  and capital  stock.

 

Negative effects of under population

1. It leads to underutilization of resources in the economy. The economic potential of the country is not properly tapped since some resources remain idle.
2. It discourages specialization and division of Labor. There is a tendency of people to engage in subsistence production by producing a variety of traditional crops. This hinders economic growth and development.
3. It discourages both local and foreign investors. This is due to the limited market size resulting from the small population.
4. It leads to low per capita income. This leads to low standard of living of the people.
5. It increases the unit costs of providing social services by the government. The expenditure on social capital per head is relatively high and not cost effective.   It is not worthy to build roads, dams, schools, and hospitals for a small population.
6. Under population hinders economic growth and development. This is due to lack of competition and initiative in the production process.
7. It leads to shortage of Labor force. This forces the country to rely on foreign man power which is expensive.
8. It makes it difficult to trade and exchange goods and services between regions. This is due to high transport costs as a result of the sparsely distributed population.

 

Optimum population

This refers to the size of the population which provides the Labor force that yields the highest possible output per capita given the available natural resources and capital stock. A country which experiences optimum population is one in which the existing technical knowledge, capital equipment and other natural resources are all used to yield the maximum possible output.

 

Over population

This refers to the population size where the increase in the Labor force leads to a decrease in output per capita given the available natural resources and capital stock.

Advantages   of over population

1. It increases the size of the domestic market for both the manufactured and agricultural products.
2. It encourages Labor mobility. This is because many young people can easily move to other areas in search of employment.
3. It stimulates rapid economic growth. This is due to the expansion of investments as a result of increase in market size.  .
4. It increases Labor supply and mobility in the country. This increases output hence economic
5. The big population puts pressure on the government to provide social services so as to meet the basic needs of people.
6. Stimulates investment
7. increased exploitation and utilization of resources
8. encourages innovations and inventions

Advantages of over population

1. It increases the size of the domestic market for both the manufactured and agricultural products.
2. It encourages Labor mobility. This is because many young people can easily move to other areas in search of employment.
3. It stimulates rapid economic growth. This is due to the expansion of investments as a result of increase in market size.  .
4. It increases Labor supply and mobility in the country. This increases output hence economic
5. The big population puts pressure on the government  to provide social services so as to meet the basic needs of people.
6. Stimulates investment
7. increased exploitation and utilization of resources
8. encourages innovations and inventions

Disadvantages of over population

1. It leads to low standards of living. This is due to high cost of living and low per capita income.
2. It leads to over straining of the available social amenities like water supply, medical services, electricity, roads etc.
3. It leads to food shortage in the economy.  This results in famine and malnutrition hence poor health conditions.
4. It leads to excessive demand for goods and services in the economy hence demand pull inflation.
5. It leads to balance of payment problems.  This is due to increased importation of commodities in the country.
6. It encourages rural urban migration with its associated problems. This is because people leave the rural areas to come and enjoy the better services in urban areas.
7. It increases the levels of unemployment and under employment in the economy as a result of excess population.
8. It leads to over exploitation of natural resources hence environmental degradation in form of pollution.
9. It reduces government tax revenue in case the majority of the people are poor.
10. It encourages political instabilities  in  form  of civil  wars  due  to  the  excessive   pressure   on  the government   for social
11. It increases dependence burdens in the economy. This discourages savings and investments due to high consumption   expenditure.
12. leads to income inequality
13. High social costs in form of pollution
14. it results in brain drainage
15. Limited domestic market due to low income

Measures to ensure food security in developing countries

• Intensive farming to produce food in small space
• Large scale farming to ensure large food production
• Mechanization of agricultural production
• Use of improved planting material and animals
• Use of improved production techniques such as use of fertilizers and pest control.
• Land reclamation to increase agricultural land
• Agro-processing to increase self-life of food and reduce wastage
• Importation of food to supplement local production
• Improved transport system to allow movement of food from where it is produced to where it is required.

The Malthusian   population theory

This theory was put forward by a British economist in the 18th Century called Reverend Malthus.  He used this theory to explain the relationship   between population   growth and economic development    in form of food supply and other necessities.   He observed  that  since  land  and  other  resources   are fixed, any  effort  to increase  food production   would  be frustrated  by an increasing   number  of people  due  to the law of diminishing  returns.

Rev. Malthus based his theory on the following assumptions.

1. Population growth entirely depends on food supply.
2. Population grows   at a geometric rate doubling every after 30 years; for example 2, 4, 8, 16, 32 …
3. Food supply grows at an arithmetic rate for example 2, 4, 6, 8, 10 …

Due to the differences in increase of population and food production; Malthus proposed, a given time T (the population   trap) when the population    growth   would   outstrip   the means   of subsistence   (food  supply)  leading  to starvation  and death.

 

 

 

 

Illustration of the Malthusian Population Trap

Malthus suggested  that the only way  to avoid  human suffering beyond the population trap; population growth must checked by preventive negative checks such as celibacy, late marriages, family planning, moral restrain, etc.

1. Population Trap refers to the inevitable   level of population    at which   population    growth   stops because of shortage of food to support it.

 

Limitations of Malthusian population theory

To a greater extent, the Malthusian population theory is of limited relevance or to developing countries in the following ways:

1. He assumed that resources e.g. land are fixed and therefore food production cannot increase faster than population but ignored that the quality of resources can be improved.
2. He ignored the fact that improvement in technology lead to increase in food production with use of agricultural mechanization and irrigation.
3. The ignored the fact that continuous supply of food can obtained from international trade.
4. He assumed that food is the only determinant of population growth; yet there are other factors such as immigration, levels of education, and cultural beliefs. The modern medicine and public health programs have reduced the death rate and therefore population increase does not show a define relationship with income per capita
5. Foreign aid may not necessarily increase population in LDCs, because not all foreign aids are used in food production
6. Malthus never indicated the time when the population trap would occur which means the theory is in waiting for the reality to occur.
7. Malthus did not realize that rising living standards can cause a fall in birth rates and population growth. The theory assumes that national rates of population growth increase are positively related to the levels of national income. Therefore, as national income increases, population growth rates also increase yet in many countries as national income increases, birth rates have tended to fall.
8. The theory was developed in Britain and has never been experimented in LDCs like Uganda and probably not substantial.
9. The theory did not foresee great improvement in transport that makes it possible to transfer food from areas of plenty to areas of scarcity hence developing countries can offset the problems of food shortages.
10. There is no mathematical relation as regards growth in food and population. There is no proof to show that population increases in a geometric progression and food production increase in an arithmetic progression.
11. It ignored the possibility emigration to ease pressure on resources. People emigrate from countries which are densely populated to countries which are less populated resulting into reduced pressure on resources in the overpopulated countries.
12. Failure of the theory to visualize (foresee) the possibility of Labor mobility from areas where opportunities are limited to areas where high wage employment opportunities exist.
13. The theory is based on the subsistence economy yet modern economies of developing countries are not predominantly subsistence any longer. Commercialization of production leads to specialization and increased output for exchange thus averting any possibility of shortages in food supply. This too was not envisaged by the theory.
14. The theory ignored the deliberate and scientific methods of birth control. Malthus did not foresee the possibility of applying modern family planning methods like use of condoms, vasectomy and contraceptive pills to reduce on population increase.
15. Malthus was influenced by the law of diminishing returns which is not always true. At times increasing amount of a variable factor, Labor, to a fixed factor, land, results in increasing and constant returns not diminishing returns as the theory assumed.

 

Population    problems    in developing    countries   (Uganda)

 

1. There is food shortage to support  the increasing   population.    Countries   are forced   to import foodstuffs or to seek for foreign aid from other countries.
2. Balance of payment problems.  This is as a result of increased   government   expenditure   on food imports and other social requirements for the population.
3. High levels of unemployment and under-employment. The population   growth rate exceeds the rate at which jobs are being created.    This is due to limited job creating investments   as a result of low   savings and capital.
4. Diminishing returns in the agriculture sector due to high population   pressure on land and other natural resources.   This leads to low levels of productivity   and per capita income.
5. Low capital accumulation. This   is due to high   consumption    expenditures    leaving   little   or nothing for savings and investment.
6. Poor standards of living. This is due to shortage   of goods   and services   and high   levels   of inflation due to excessive demand for goods and services.
7. Over exploitation of natural resources hence environmental degradation   and pollution.
8. Rural urban migration leading to congestion, high crime rates, prostitution,    theft etc.  in urban centers.
9. High dependence burdens. The increasing   population   makes developing   countries   to depend on other developed countries for foreign aid in form of food and other consumer   goods.
10. High levels of brain drain. The increasing population   accelerates   brain  drain  as the  young  and highly  educated  individuals   leave  their  countries   in search  of “greener   pastures”    in  developed countries.
11. High levels of illiteracy due to low levels of education and poor health services. The majority of  the  people   are  poor  and  they   cannot   access   the  expensive   higher   education    due  to  high dependence   burdens.
12. Political instabilities in form of civil wars and struggle for the limited social services.

 

Possible solutions   to the population   problems in developing countries

The solutions aimed at solving the problems of increasing population   are contained   in the population policy.  Therefore   the population   policy is aimed at attaining   optimum   population   by checking   on population    growth   and increasing   resources    and production    capacity.      Such population    policies include the following;

1. Family planning. This includes   the use of contraceptive   pills, condoms   and other intra-uterine devices.    However, this method has not been effectively   used due to high levels of illiteracy   and fear of side effects.
2. Encouraging higher education. Emphasis   should  be put  on  female  education   so as to check  on the  fertility   rates  and  emphasize   the  quality   of  children   other   than the  quantity.   In addition, education also helps to postpone marriages   for the future.
3. Adopting production policies aimed at increasing food supply to reduce on food shortages.    This helps to reduce on the diseases associated with malnutrition.
4. Rural development policies aimed at making rural areas attractive so as to check on rural urban migration. Such policies   include   rural electrification,    security,   water   supply   etc.   This   also promotes agricultural production.
5. Disease control measures. Health programs   should be set up to educate   the people   on how to control and reduce on the spread of diseases through primary health care.
6. Legalizing abortion as a way of controlling unwanted pregnancies   and population   growth.

 

Agricultural development

This a process of improving agricultural capacity characterized by sustainable, efficient utilization of factors of production.

 

The role of government in promoting agricultural development

• Liberalization of agriculture enabling private investors.
• Construction of dams and setting up irrigation schemes to enable cropping throughout the year.
• Provision of agricultural inputs such as fertilizers at subsidized prices.
• Development of improved planting materials.
• Provision of agricultural extension services.
• Provision of better tools equipment and cheap short and long-term credit.
• Encourage and assist farmers to form cooperative unions to source cheap inputs and market for the produce.
• Provision of water through valley dams and borehole to livestock in dry areas.
• Improvement of road network in rural area to enable marketing of produce and acquisition of inputs
• Construction of collection centres and modern storage facilities for produce.
• Promote agro-processing in order to add value to agricultural produce.
• Universal education to reduce illiteracy and ignorance
• Land reclamation to increase agricultural land

 

Agricultural extension services

 

Agricultural extension services are defined as “the entire set of organizations that facilitate and support people engaged in agricultural activities to solve problems and to obtain information, skills, and technologies to improve their livelihoods and well-being”

 

Importance of extension workers in rural agricultural development

 

• They train and educate farmers on modern farming practices to boost agricultural productivity.
• They encourage people in farming business to improve rural livelihoods
• They empower rural communities on their social economic and health aspects such as HIV prevention.
• They improve nutrition and household income through increased productivity and market oriented farming.
• Promote agricultural innovations
• Empower marginalized groups in agriculture.

 

Methods of value addition of agricultural produce

 

• Processing of produce to acceptable form
• Organic production, since consumers have high preference for organically produced products.
• Attractive packaging
• Blending with other substances to improve taste and flavor
• Transporting produce to the market
• Advertisement i.e. providing timely and persuasive information
• Early harvesting/planting

Gender analysis in agriculture

This is the systematic gathering and examination of information on gender differences and social relations in order to understand and redress inequalities based on gender.

 

Reasons for use of gender analysis in agriculture

• To remove constraints to participation of women and men in agriculture.
• To promote interests and needs of both women and men in agriculture
• To effectively control, monitor and evaluate development interactions.
• To ensure equitable and sustainable development of both men and women.
• To identify issues among a given group
• To ensure knew innovations, inventions and technologies will not adversely affect women.

Reasons for empowering women in agricultural production

• To increase the number of women involved in agricultures.
• To increase the work force in agriculture.
• To improve women social status in decision making

 

Factors that limit women’s participation in agriculture in Uganda

• Lack of land and other resource to carry out agriculture
• Lack security to obtaining credit
• Majority are illiterate with limited education
• Reproductive responsibility and children raising deny them enough time to engage in agriculture
• Lack of adequate time in agriculture due to their physiology such as pregnancy
• Inability to use big machines
• Poor /low income which makes it difficult for them to raise capital.
• Long distances to the market.
• Low access to information
• Introduction of modern crop hybrids that require additional labor.
• Low self-esteem of women in decision making

 

Ways of improving women participation in agriculture

• Encourage women to own land on which to grow crops even in absence of husbands.
• Promote positive self-esteem of women in decision making
• Increase women in agricultural education.
• Promote women in order to get credit.
• Build a positive attitude of women towards agriculture.
• Women should be encouraged to participate in extension workers’ meeting.
• Provision of social services in rural areas where most women reside.