ABSTRACT
This chapter reviews theoretical and empirical supply response studies connected with policy analysis. It focuses on theoretical and methodological developments and their limitations. Although supply response analysis has been pursued with much vigour for the last 70 years, it remains an important and controversial area. A number of explanations or hypotheses have been put forward in order to capture the complexity of supply behaviour in subsistence or semi-commercial settings; i.e. situations where a significant proportion of output may be retained for family consumption or other issues. The foundations of the duality approach are the indirect profit and cost functions, obtained from the primal profit maximization and cost minimization problem. The indirect profit function is defined as the maximum profit associated with given output and input prices. The literature on empirical modelling of Chinese grain supply has only really developed since the early 1980s. There has been a growing number of studies, mainly using econometric models.
