4 - Topics in production economics

Summary

Introduction

This chapter deals with four subject areas of importance to the analysis of production and supply. In public debates about growth and development it is common for reference to be made to (i) differences in efficiency among sectors of the economy, and to (ii) differences in efficiency in agricultural production among countries, regions, farm sizes and tenure systems. The concept of efficiency in economics is a complex and difficult one. Section 4.2 below presents a brief examination of the problems and the usefulness of certain measures of efficiency.

One of the principal engines of economic growth is technological change. The tools presented in Chapter 2 provide the basis for the explanation and definition of technological change which is set out in Section 4.3.1. Section 4.3.2 discusses the sources of technological change, and this is followed (in 4.3.3) by a discussion of adoption and diffusion of agricultural technology and its impact in the so-called Green Revolution.

Reference has already been made in Chapter 3, in the context of the need for a dynamic treatment of supply response, to the importance of risk and uncertainty upon farmers’ decisions. Section 4.4 pursues this in slightly more detail, and indicates the implications of risk aversion in the face of uncertainty for resource allocation at the farm level and for supply response to price in general.

Fourthly Section 4.5 deals with a special topic in production (and consumption theory) which is covered by the term duality. The essence of this topic is that there are alternative ways of expressing the resource allocation problem for the competitive firm, which contain all the same basic technical and behavioural information.