ABSTRACT
This chapter explores aspects of supply and demand theory which is useful in explaining the behaviour of the typical Chinese grain producer and consumer. The theory of supply is one of the basic building blocks from which that part of economics known as microeconomics is constructed. One of the great challenges to the neoclassical economic theory is to explain the behaviour of households in the semi-commercialised production situations of less developed economies, confounded as this is by the complex motivations of these households and the rather intricate policy frameworks within which they usually operate. Gary S. Becker used utility maximising subject to constraints of expenditure and a production function to combine both consumption and production activities into a household model. After 1975, The World Bank and Stanford University developed agricultural household models that combined household consumption and production with labour supply decisions.
