Suppose that we divide commodities into two groups: food and nonfood.

(a) Draw indifference curves that reflect the fact that preferences for food grow relatively weaker as we increase consumption of both commodities. Now introduce a budget constraint (income and fixed prices) and chalk out the consumption points as income varies. On a separate diagram, describe how food consumption varies with income for fixed market prices.

(b) Use this diagram to argue that if relative prices of food to nonfood are fixed, the growth of food consumption in the world economy will be slower than the growth of total income, use this observation to argue that exporters of food will find export revenues growing more slowly than world income. This is the essence of the declining terms-of-trade argument for primary products.

(c) Use these arguments to provide a partial explanation for why farmers in developed countries demand (and obtain) high levels of economic support from the government.