{text:bookmark-start} Introduction {text:bookmark-end} {text:bookmark-start} Demand Function in Agriculture Sector {text:bookmark-end} {text:bookmark-start} Demand in the short run {text:bookmark-end} In the short run demand in the agricultural industry is affected by the fact that it is income inelastic because of Engel’s law which basically states that “with successive increases in income food consumption as a proportion of income declines”. At this point it must be pointed out that consumption is different from expenditure unless all goods have the same price, in other words, the money a consumer spends on food (i.e. expenditure) may increase, remain stable or even decrease but his consumption will decrease as illustrated in the following diagram. {draw:frame} In the diagram we see that at low incomes consumers spend great amounts of their incomes on food however as incomes increase the proportion of income spent on food declines as consumers can now sustain themselves with the amount of food they have purchased and prefer other goods like televisions or computers. The above holds because the law of diminishing marginal utility for agricultural goods kicks in at a much earlier stage compared to other goods considering the fact that most agricultural goods have been found empirically to be inferior. This is because a person can only consume a specific amount of food so even if they switch to more expensive alternatives they will still represent a lower percentage of their income than before the increase. Apart from being income inelastic demand is also relatively price inelastic. This is because after consumers have bought the goods they need no matter how much producers lower the prices they won’t consume more because excess consum ...