The results described challenge the generally accepted interpretation of the factors underlying the changes in sheep numbers in the arid zone of New South Wales. The extent to which long-run changes in rainfall have been ignored is highlighted. Estimates of output per man are derived, using the C.E.S. production function, which show that there has been a small positive rate of technological change. Three-quarters of such technological advance has been due to factors which affect numbers of sheep carried, the remainder due to factors affecting wool production per sheep.