FIGURE 5-2 Equilibrium in output market with change in product quality.

early years might be low and the price effect not very significant.Over time, increased adoptions would lead to outward price reduction. The CS can change over time because of exogenous factors, such as population growth. Increased population might tend to increase the demand for a product and the annual CS associated with the pest-control strategy.

  1. Final versus Intermediate Good. Many agricultural commodities are intermediate goods for the production of final goods. For example, alfalfa, corn, and soybeans are used as feed products in the production of meats. Therefore, analysis of CS effects have to incorporate factors that affect both the grain market and the final-product market. Knutson et al. (1990) show that a pesticide ban in grain crops will reduce consumer welfare substantially through its impact on the price of meats. They separated the impacts of the ban into impacts on feed-crop growers, livestock operators, and final consumers. When agricultural products go through several stages of processing, intermediate surpluses have to be derived.

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