Producer Surplus
Producer
Surplus
“Quantity of the produce that can be made available
for non-producing people of the country is termed as producer surplus”. It has
two components
a). Marketable surplus
The
actual quantity that can be made available to non-producing community of the
country, that is the farmer has such quantity of production after satisfying
his family, farm and other essential requirements.
MS = P-C [P-Actual production, C-Farmers requirement]
Factors
affecting Marketable surplus
- Size of the farm
holding (larger the size of farm, more the marketable surplus)
- Total amount of
production
- Family requirements
(depends upon family size and social obligations)
- Nature of commodity
produced (non-food produces increase the marketable surplus)
- Consumption habit of
the farmer (food habit in
- Price of the
commodity and market fluctuations (change in price has both positive and
negative effects on marketable surplus)
Relation
between Price and Marketable surplus
i). Inverse relationship
When we assume that the cash requirements of farmer
is inelastic/fixed, the farmer tend to sell more produce when price is less and
sells less when price is more so as to satisfy his fixed cash requirements.
ii). Positive relation
When
we assume that the farmers cash requirements fluctuates and farmer is price
conscious, farmer tend to sell more when price is high and vice versa.
“Actual quantity of the production that a farmer
sells in the market irrespective of family/farm/other requirements. It may e
high/low or equal to marketable surplus.”
Relation between
Marketable surplus and marketed surplus
Marketable
Surplus > Marketed Surplus : Distress sale as the farmer sells more even at
low price
Marketable
Surplus < Marketed Surplus : when farmer has higher hoarding capacity and
proper commodity substitution
Marketable
Surplus = Marketed Surplus : Normally
for Perishable commodities
Knowledge
on Production surplus is useful to
- Work out
policy
- Avoid
price fluctuation
- Procurement
policy
- Development
of transport and storage facilities
- Advanced
estimation of surplus
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