Agriculture

Question 1

Please explain and describe graphically how to reach the result of an inverse relationship between land size and farming intensity.

Answer 1

At low levels of land size, farming intensity is high because farmers are able to intensively cultivate the small plots of land they have. As land size increases, farmers are less able to cultivate each plot, leading to a decrease in farming intensity.

concave function

Question 2

Please outline and describe (graphically) the Lewis model.

Answer 2

It explains how labor moves from a traditional agricultural sector to industrial sector.

• Assumes further additions of labor make zero (or even negative) contribution to output
• as input of labor increases, output increases but at a diminishing rate.
• Continuing will lead to zero output (or even negative due to diminishing returns).
• wages in AC culture increases for the remaining workers, as labor shifts to industry

Question 3

THE NEOCLASSICAL TWO-SECTOR MODEL

Answer 3

• MPL is always positive, unlike the Lewis model
• Efficient allocation between agriculture and industry based on where labor can be used most efficiently.
• Labor Market Clearing: In the neoclassical model, both the agricultural and industrial labor markets clear, meaning that wages adjust to ensure that labor supply equals labor demand in both sectors.

Question 4

Please outline the pros and cons (from an efficiency point of view) of smallholder farming.

Answer 4

Pros of Smallholder Farming:
- Higher Land Productivity: Small farms often achieve higher productivity per unit of land due to more intensive use of labor and inputs.

• Flexibility and Adaptability: Smallholders can quickly adapt to changes in market conditions and adopt new technologies.
• Labor Utilization: Small farms utilize family labor efficiently, reducing unemployment and underemployment.

Cons of Smallholder Farming:

• Economies of Scale: Small farms may lack the scale needed to benefit from economies of scale in production, marketing, and purchasing inputs.
• Access to Capital: Smallholders often face challenges in accessing credit and capital, limiting their ability to invest in productivity-enhancing technologies.
• Market Access: Small farms may have limited access to markets and infrastructure, reducing their ability to sell produce at competitive prices.

Question 5

Please describe the “separation hypothesis” and outline an empirical test to verify or falsify the hypothesis.

Answer 5

​​In a neoclassical framework without market distortions, it is assumed that individuals can optimize their decisions regarding production and consumption separately, based on their preferences and budget constraints.

• Separation hypothesis states that households decisions are interdependent, when market distortions happens, fx imperfect information

Question 6

Test of separation hypothesis - Benjamin 1992

Answer 6

• B. develops an empirical test by examining the correlation between household composition and farm labor allocation.
• Null hypothesis: farm labor demand is only determined by wages and land size, independent of household composition.
• Alternative hypothesis: farm labor demand is determined by household composition, indicating non-separation due to market failures (imperfect labor markets).
• Benjamins findings: Finds that demographic variables are not significant, supporting the separation hypothesis. However, in some cases, labor market imperfections may lead to non-separation.

Question 7

Outline the PROS (from an efficiency point of view) of smallholder farming.

Answer 7

Pros:

• Higher productivity: small farms often reach higher productivity per unit of land due to more intensive use of labor and inputs.

Flexibility: smallholders can more quickly adapt to changes in market conditions and adopt new techonologies.

Labor utilization: they use family labor more efficiently, reducing unempoloyment and underemploytment

Question 8

Outline the Cons (from an efficiency point of view) of smallholder farming.

Answer 8

Economies of scale: they may lack the benefit of economies of scale of production and purchasing inputs.

Access to capital: Access to capital can be limiting due to credit and capital lacks.

Market access: they may have lack of access to markets and infrastructure reducing their ability to sell products at a competitive level.