460 AGRICULTURAL ECONOMICS 



III 



Granted, then, the relatively inelastic character of the demand 

 for farm products in general, what are the important consequences, 

 theoretical and practical ? 



1. This characteristic of inelastic demand helps to explain why 

 speculation finds such an important sphere of operations in the field 

 of agricultural products. Speculation aims at making a profit out of 

 price fluctuation, and, other things being equal, price fluctuation is 

 in proportion to the inelasticity of demand for a good. It is true, of 

 course, that farm products are subject to great variations in supply, 

 and that this is also an important factor hi explaining price fluctuations 

 with respect to those products, and consequently in explaining specu- 

 lation. But the inexorable character of the demand for these prod- 

 ucts, up to a certain point, and the almost total default in demand 

 after this point has been reached, afford the necessary background 

 and condition for variation in supply to work out its full effects with 

 reference to price fluctuation. Relatively small surpluses and deficits 

 in farm products have a relatively large effect on the price, and specu- 

 lation is thus promoted. 



2. It may be noted, in the second place, that since international 

 trade in grain and hi other farm products enables the crop deficits of 

 one country to be offset by the crop surpluses of other countries, thus 

 equalizing demand and supply for the world as a whole and thus 

 affording a very considerable measure of elasticity of supply in the 

 country or countries with crop deficits, tariff restrictions or other 

 restrictions with reference to international trade in farm products 

 necessarily emphasize the effect of inelasticity of demand and supply 

 and thus greatly emphasize price fluctuation. Foodstuffs attain to 

 famine prices in one country and decline to a low price level in other 

 countries one year, and the following year the situation may be com- 

 pletely reversed. Speculative conditions are thus everywhere exag- 

 gerated. Spurred on largely to increase acreage by the excessive 

 prices resulting from the shortage of one year, the agriculturists of the 

 country are likely largely to overproduce under the probably more 

 favorable crop conditions of another year. Discouraged, in turn, by 

 excessively low prices, farmers will limit decidedly the acreage of the 

 crop in question, and bad crop conditions and short acreage may again 

 coincide, with the result of another series of famine prices and so 

 on indefinitely. 



