Discuss whether the elasticity of supply of manufactured goods is likely to be greater than the elasticity of supply of agricultural goods [12]

Discuss whether the elasticity of supply of manufactured goods is likely to be greater than the elasticity of supply of agricultural goods [12]

The term elasticity of supply measures the responsiveness of the quantity supplied by producers of a given product in relation to a change in the price of the product. The elasticity of supply is affected by factors such as the production time, the availability of the factors of production needed, the perishability of the product, and in turn, its ability to be stocked, the transportation technology and infrastructure and various other factors. In a more general sense, the easier it is for a producer to change the level of output supplied, the higher the price elasticity of supply.

Certain aspects of agricultural goods are very likely to increase their price elasticity of supply. One of these aspects is the fact that many agricultural goods such as grains can be stored for very long periods of time allowing for large stocks to be built up in order to easily increase supply in the case where the price of such a product increases. Beyond this, recent improvements in storage technologies such as refrigeration and freezing have allowed for most agricultural products to be stored for very long period of time, with refrigerated apples lasting up to 2 years and frozen produce last multiple years. All of these further increase the ability of agricultural products to be stocked and as such help increase the price elasticity of supply. Moreover, improvements in farming techniques such as pesticides and fertilizers, combined with improvements in education have vastly increased the occupational mobility of the factors of production land and labour in the farming process, all of which serve to help further increase the price elasticity of supply by allowing for an easier transition between different types of crops in relation to a change in the price of said crops. However, despite all of this, the price elasticity of supply for agricultural goods is still kept relatively low by certain key aspects of the production process. As crops are made in harvests, once a harvest is started, the supply of the crops will be fixed until the next harvest as it is impossible to switch crop midway through the growing process, this is particularly impactful as a harvest can take multiple months to complete. Thus, the supply of agricultural goods is fixed in the short term, leading to an incredibly low price elasticity of supply in the short term. Moreover, the supply of certain factors of production is also fixed. There is only so much fertile farmland available, thus the extent to which supply can be increased is limited by the land available. The real life effects of such issues can be seen in multiple examples, perhaps most notably in Japan, where, due to the nation’s very mountainous geography, domestic farmers are unable to increase production despite increases in the price of agricultural goods. As such, despite the price elasticity of supply for agricultural goods going up in recent years, it is still relatively low due to the nature of the production process as an inherently time consuming one.