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Explain whether you would expect the price elasticity of supply of an agricultural product, such as rice, in a market to be elastic or inelastic. [8]

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Introduction

Transfer-Encoding: chunked ´╗┐Explain whether you would expect the price elasticity of supply of an agricultural product, such as rice, in a market to be elastic or inelastic. [8] Supply refers to the amount of a certain product that suppliers are incentivised to produce at every given price levels. The elasticity of supply, measures the responsiveness of the quantity supplied of said good in relation to a change in its price. A highly price elastic supply would be characterised by a very high responsiveness to changes in price, meaning that if the price increases, suppliers would be able to easily increase output to maximise their revenue. An inelastic supply, would be the opposite, it is characterised by an inability of suppliers to adjust the levels of output in response to a change in the price of a product. This can be either due to a long production process, poor transportation technology or a fixed supply of factors of production. ...read more.

Middle

Moreover, since certain crops must be cultivated on very soft, often swamp-like land, transportation access is likely to be limited due to the unstable nature of the soil. This is particularly true in the case of rice. Thus, the easy transportation of rice is likely to be impeded, in turn limiting the ability of suppliers to rapidly deliver more rice in order to meet an increase in price, and once again lower the price elasticity of supply. Finally, since many of the factors of production required in the production process of agricultural goods tend to be relatively fixed, an increase in the scale of production may not always be feasible. As very specific land is required for the cultivation of most crops, their production will always be limited to the amount of available land in a given geographical region. This once again limits suppliers? ability to change output in relation to price by tying their potential output to a resource in fixed supply, thus further lowering the price elasticity of supply for rice. ...read more.

Conclusion

Similarly, advancements in agricultural machinery have allowed farmers to not only increase their yields, which allows for larger stocks to be kept, but also to farm on less than ideal land, thus helping to ease the issue posed by the fixed supply of land, by allowing farmers to take advantage of more land than was previously possible. This in turn makes it easier for agricultural workers to increase output after an increase in price, in turn allowing for higher elasticity of supply. Overall, due to the incredibly low perishability of agricultural goods provided by recent advancements in storage technology, together with the improvement in transportation that have allowed supplier to meet changes in price promptly, I would expect the it to be very likely that the price elasticity of supply for agricultural goods to be quite elastic, especially when compared to their elasticity in the past. ...read more.

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