Why are the prices received by farmers less stable than the prices paid by farmers?
What will be an ideal response?
The prices received by farmers are determined in a competitive environment where the price elasticity of demand is low, and there are many possible factors that can shift supply. This leads to a situation where the market equilibrium price changes frequently and often by substantial amounts because the demand curve is relatively inelastic, so shifts in supply cause a greater percentage change in equilibrium price than in equilibrium quantity.
The prices paid by farmers for their productive resources, on the other hand, tend to be quite stable. In the first place, there are proportionately large-cost land rent or mortgage interest payments, payments on large-scale equipment, and so forth, which are relatively fixed. Second, the prices of other productive resources like fertilizers, pesticides, and farm equipment, tend to be produced in oligopolistic markets where prices are quite inflexible.