Question

Farmers buy many goods such as tractors, pump sets, electricity, pesticides, and fertilizers. Imagine what would happen if the price of fertilizers or pump sets go up? What does this show?

Accepted Answer

Farmers buy many goods such as tractors, pump sets, electricity, pesticides, and fertilizers. These goods are the inputs required by the farmer in the process of crop cultivation. When the price of any input goes up, it will lead to a rise in the cost of production, and due to the rise in cost, profits will also fall. As the profits will be reduced, this situation will lead the farmer towards a debt trap as he will not be able to repay his previous debts. Further, he borrows for the next season as he would not have enough capital to cultivate the field. This creates a constant loop that is hard to get out of. This situation will also impact the economy as a whole, as this will lead to inflation. If farmers sell their produce at a higher price, this will lead to cost-push inflation.

This situation shows that minor changes in one attribute will lead to a major change in the economy as a whole.

This also shows the relationship between the price of producer goods and consumer goods. As the rise in the price of producer goods, the price of consumer goods goes up. The dependence of the primary sector on the secondary sector can also be seen in the given situation.

Exercise 1

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