ASSIGNMENT SAMPLE U25292 SUBJECT GROUP OF ECONOMICS AND FINANCE
1. Introduction
There have been major changes observed in the UK agricultural market over the last few years, with a gradual increase in the demand for agricultural goods by the consumers. This demand has led to changes in price demanded by the producers when it came to selling the goods in the market. However, it should be noted that prices of agricultural goods are also dependent upon various other determinants such as inflation, rate of interest, foreign exchange rates, and so on. The following section will outline the behaviour of agricultural markets in a perfectly competitive market setting and assess the impact it may have on any new firm entering the market.
2. Background
The covid-19 pandemic has brought about a huge change in the agricultural market, with significant fluctuations observed in the demand and supply side of the market. This has also led to the economies of scale of the industries getting affected, causing changes in demand for agricultural products in the market (Schmutz et al. 2018). This pandemic has brought in significant changes which can make a major impact on the sale and purchase of agricultural goods in the long run.
3. Understanding of key issues
Several issues have been outlined as a result of the pandemic affecting the economic structure of the country, causing a direct impact on the market for agricultural goods and services. The government plays a significant role in the economy in providing opportunities that will help in making the market for agricultural goods more profitable for both the producers and consumers. However, owing to the correct economic situation, the market for agricultural goods is significantly suffering because of the government budget deficit. This has also been further aggravated by the present state of inflation which is significantly lower than the past few years. This has caused changes in the demand and supply behaviour, as the expected rate of inflation has caused a lowering of investment in the agricultural businesses causing huge losses (Sahoo and Krishna, 2020). This had a direct impact on the economies of scale as there has been a considerable decrease in the production of agricultural goods in the market despite the increase in demand. It is expected to cause a major impact on the prices of these goods, especially in the short run, as in the long run there is a chance for the market to recover.
The effect has also been severe on the market for loan able funds and the rate of interest as both of these aspects are closely linked with each other. The dire economic condition has caused increased fluctuations in the rate of interest which on most accounts is on the higher side. This in turn has affected the market for loan able funds, as both the demand and supply side of the loan able fund of the curve is interest-sensitive. Therefore, such huge fluctuations have caused the demand for agricultural goods to fall causing a shift in the loan able fund curve. It should be noted that the loan able fund curve has a strong relationship with the purchasing power of the borrowers. As opined by MacDonald (2006), this means a rise in loan able funds means that the borrowers have a greater capacity to produce more goods in the market and vice-versa. Hence, these key issues are what are affecting the market for agricultural goods in the UK.
4. Impact on the market
A closer study of the key issues highlights the interconnection that is present between each of the determinants namely that of inflation, interest rate, loan able funds, and demand and supply in the market. Each of the determinants has a strong effect on the market for agricultural goods and services and is responsible for the fluctuating prices in the market. Considering the case of expected inflation, it should be noted that the rate of inflation plays a significant role in outlining the investment decisions that are taken by producers when it comes to making investments in the market. It has been observed that the current pandemic situation has discouraged inventors from investing in the agricultural market owing to the low rate of returns and high rate of interest. There is also reduced demand present in the economy with most of the savings being used up by the consumers to sustain themselves during the pandemic. In such a situation the government needs to come up with policies that will help in removing the agricultural sector and increase the demand in the economy. According to Hill (2018), this can be done in the form of providing subsidies which will further lead to an increase in the economies of scale of the industry.
In a competitive market industry, like the agricultural market, providing subsidies will help provide the necessary boost needed for the first to increase demand in the market. It will also motivate the investors to raise their level of investment and thus create an increase in the demand for loan able funds in the market. This would further have a direct impact on the purchasing power of the firms as due to increased investment they too will be able to increase their level of purchasing power and thus have a positive effect on the supply of agricultural goods and services (Espolov et al. 2020). This would also have a positive effect on the rate of interest causing it to fall and making it more attractive for the firms in the agricultural market to make investments. Hence, it can be stated that the government has a significant role to play when it comes to maintaining a perfectly competitive agricultural market in the economy.
5. Conclusion
It can be concluded that the supply and demand side of the economy in a perfectly competitive agricultural market is significantly dependent on a variety of determinants such as inflation and interest rates. Each of these determinants is closely related to one another, thereby having a significant effect on the economies of scale of any single firm within the market. Therefore, firms must ensure that there is investment present in the economy and that the demand for loan able funds is always on the positive side. This will ensure that the market for agricultural goods becomes profitable for both the producers and the consumers.
References
Espolov, T., Espolov, A., Kalykova, B., Umbetaliyev, N., Uspanova, M., & Suleimenov, Z. (2020). Asia Agricultural Market: Methodology for Complete Use of Economic Resources through Supply Chain Optimization. Int. J Sup. Chain. Mgt Vol, 9(3), 408. Retrieved on 10th January 2022 from https://core.ac.uk/download/pdf/328146402.pdf
Hill, B. (2018). Agricultural Economics Society Symposium on Brexit studies and their findings at farm level (No. 2111-2018-4151). Retrieved on 10th January 2022 from https://ageconsearch.umn.edu/record/273502/files/Berkeley_Hill_Symposium_II_BH.pdf
MacDonald, J. M. (2006). Agricultural contracting, competition, and antitrust. American journal of agricultural economics, 88(5), 1244-1250. Retrieved on 10th January 2022 from https://pubag.nal.usda.gov/download/6888/PDF
McNulty, P. J. (1967). A note on the history of perfect competition. Journal of Political Economy, 75(4, Part 1), 395-399. Retrieved on 10th January 2022 from http://www.economia.unam.mx/biblioteca/Pdf/bibliografia/McNultyAnoteonthehistoryofperfectcompetition.pdf
Sahoo, A. K., & Krishna, D. K. Prospects of Direct marketing through Agricultural Market Reform in India. 2020 Food and Scientific Reports ISSN 2582-5437. Retrieved on 10th January 2022 from https://foodandscientificreports.com/assets/uploads/issues/1594873667prospects_of_direct_marketing_through_agricultural_market_reform_in_india.pdf
Schmutz, U., Kneafsey, M., Kay, C. S., Doernberg, A., & Zasada, I. (2018). Sustainability impact assessments of different urban short food supply chains: examples from London, UK. Renewable Agriculture and Food Systems, 33(6), 518-529. Retrieved on 10th January 2022 from https://core.ac.uk/download/pdf/228152220.pdf
Wordofa, M. G., & Sassi, M. (2020). Impact of agricultural interventions on food and nutrition security in Ethiopia: uncovering pathways linking agriculture to improved nutrition. Cogent food & agriculture, 6(1), 1724386. Retrieved on 10th January 2022 from https://www.tandfonline.com/doi/pdf/10.1080/23311932.2020.1724386
