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<br />" . ~ <br /> <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br /> <br />~,.;,~~;!: <br />-';,",,!._J~ J <br /> <br />the 1 ong- run. <br /> <br />Since the supply of agricultural commodities reflects the marginal <br />cost of producing additional units of output and the cost of production is <br />derived from the resources used in production, the location of the supply <br />curve for agricultural commodities is detennined by two factors, the cost <br />of the resources used in production, and the efficiency with which the <br />resources are converted into outputs. In the aggregate, the supply func- <br />tion is structured as a function of output prices to input prices (prices <br />received divided by prices paid by farmers). This structure accounts for <br />the prices paid for resources; therefore, the remaining factor is the effi- <br />ciency of conversion. Research has shown that the expenditures on research <br />and extension in the U.S. combined with the educational level of U.S. farm- <br />ers provide a significant explanation of the shift of the conversion effi- <br />ciencyof resources '..0 products in the agricultural sector, captured in <br />USDA stati stics as the productivity coeffic ient. Assuming a continued <br />growth in research and extension expenditures of 3 percent per year results <br />in a current productivity growth (aggregate supply shift) of 1.5 percent <br />per year declining to 1.1 percent growth per year by 2020. <br /> <br />The quantity demanded is a function of current prices received by <br /> <br /> <br />farmers, the quantity demanded in the previous year, and the aggregate farm <br /> <br /> <br />output demand shift. Here as with supply, the aggregate fann output demand <br /> <br /> <br />representation is dependent on two principle paramaters: the short- and <br /> <br />11-37 <br />