6. THE CONCEPT OF ELASTICITY
THE CONCEPT OF ELASTICITY
Elasticity refers to the degree of responsiveness of the dependent variable to a change in the independent variable.
The dependent variable may be quantity demanded or quantity supplied while the independent variables are the factors which influence the above dependent variables.
Elasticity is broadly categorized into two;
1. Elasticity of demand
2. Elasticity of supply.
ELASTICITY OF DEMAND
This is the measure of the degree of responsiveness of quantity demanded of a commodity to changes in the factors that influence demand.
There are as many types of elasticity of demand as the determinants of demand.
However, we shall look at only the three most important ones i.e.
1. Price elasticity of demand (P.E.D)
2. Income elasticity of demand (Y.E.D)
3. Cross elasticity of demand (C.E.D)
PRICE ELASTICITY OF DEMAND
This is the measure of the degree of responsiveness of quantity demanded of a commodity to changes in its price.
TYPES OF PRICE ELASTICITY OF DEMAND
Price elasticity of demand ranges from zero to infinity (0 ≤ P.E.D ≤ ∞)
1. Perfectly inelastic demand (P.E.D = 0)
This is where a change in price does not affect the quantity demanded of the commodity. It is common with necessities. The demand curve is vertical.
Illustration
2. Inelastic demand (Low price elasticity of demand) (0 < P.E.D < 1)
This is where a big change in price results into a small change in quantity demanded. The slope of the demand curve is very steep.
3. Unit/ unitary elasticity of demand (P.E.D = 1)
This is where a change in price results into an equal change in quantity demanded. The percentage change in price is equal to the percentage change in quantity demanded. It is illustrated by a rectangular hyperbola.
4. Elastic demand(High elasticity of demand) (1 < P.E.D < ∞)
This is where a small change in price results into a big change in quantity demanded. The demand curve is gently sloped.
5. Perfectly elastic demand(P.E.D = ∞)
This is where different quantities of a commodity are demanded at a constant price. This means that the commodity has got perfect substitutes and therefore a seller cannot increase the price. The demand curve is horizontal.
METHODS OF MEASURING PRICE ELASTICITY OF DEMAND
There are three methods of measuring price elasticity of demand. They are;
a) The percentage method
b) The point method
c) The arc method (Midpoint method)
THE PERCENTAGE METHOD
Price elasticity of demand can also be defined as the percentage (proportionate) change in the quantity demanded of a commodity due to a percentage (proportionate) change in the price of the commodity.
We use the formula;
NB
Due to the inverse relationship between price and quantity demanded, all calculations for price elasticity of demand for normal goods yield negative results. As a rule, we multiply the formula with a negative to make the price elasticity of demand a positive number so as to have a correct interpretation of the responsiveness.
Please note that this rule should only be applied for price elasticity of demand.
Worked examples
1. If the price of oil increases by 10% over a period of several years and the quantity demanded falls by 5%, what is the long run elasticity of demand for oil?
2. The price of a given commodity decreased from Shs 10,000 to Shs 9000 and as a result, quantity demanded increased by 25%. Calculate the elasticity of demand and interpret your answer.
3. Given that the price of the commodity decreased from Shs 500 to Shs 400 and as a result, the quantity demanded increased from 10kg to 20kg. Calculate the elasticity of demand and interpret your your answer.
Trial question
1. A change in price of a commodity from15/= to 5/= led to an increase in quantity demanded from 2kgs to 5kgs. Calculate the price elasticity of demand and interpret your answer.
2. Assuming that the price of the commodity rises from Shs 1500 to Shs 2000 per kg and as a result the quantity demanded falls from 20kg to 15kg. Calculate the elasticity of demand and interpret your answer.
FACTORS THAT PRICE ELASTICITY OF DEMAND
1. Availability of substitutes/ degree of substitutability of the commodity.
Demand for a commodity that has close substitutes is price elastic because consumers have alternatives to choose from depending on which one is cheaper. However, demand for a commodity that has no close substitutes is price inelastic because consumers have no alternative goods to turn to or from in case of a change in price.
2. Availability of complements.
Demand for a commodity which is a strong complement to what consumers have is price inelastic because consumers continue to buy despite price changes so as to derive satisfaction from the commodity it complements. However, demand for a commodity which is not a strong complement to what consumers have is price elastic because the consumers have a choice whether to buy or not in case of price changes.
3. Proportion of the consumer’s income spent on the commodity.
Demand for a commodity which takes a very small proportion of the consumers’ income is price inelastic since people do not feel the impact of the price changes so much. However, demand for a commodity which takes a big percentage of the consumers’ income is price elastic because consumers are sensitive to price changes and a rise in price would prompt them to cut or abandon consumption while a fall in price encourages higher consumption levels.
4. Level of consumer’s income.
Demand for a commodity is price inelastic among high income earners because they have the ability to continue consuming around the same quantities despite the rise in prices and a fall in prices may not excite them into consuming higher quantities. However, demand is price elastic among low income earners because they are very sensitive to price changes and they considerably vary the quantities they buy when prices change because to them, every shilling means a lot and must therefore be put to the best use.
5. Degree of necessity of the commodity.
Demand for a necessity like food is price inelastic because consumers cannot easily do without it and hence even if the price rises, consumers find themselves continuing to buy relatively the same quantities. However, demand for a luxury is price elastic because people can easily do without it if the price rises or reduce the amount consumed.
6. Level of addiction in the use of the commodity.
Demand for an addictive commodity like cigarette is price inelastic because such a commodity forms a habit in the consumer and he buys almost the same units regardless of the changes in price. However, demand for a non – addictive commodity is price elastic because the consumer easily reduces the amount demanded when prices increase.
7. Level of durability of the commodity/ level of perishability of the commodity/ nature of the commodity i.e. perishable or durable commodity.
Demand for a durable good like a television set is price inelastic because people do not have to purchase it frequently implying that a fall in price of such a good does not necessarily call for more of it to be bought by those who have it. On the other hand, demand for a perishable good is price elastic because the frequency of purchasing is high making consumers sensitive to price changes hence buying more when the price falls and less when the price increases.
8. Number of uses of the commodity.
Demand for a good that has several uses like electricity is price elastic because an increase in the price of the commodity makes consumers to use less of it for only vital purposes and a fall in the price makes consumers to increase its demand for even unimportant purposes. On other hand, demand for a good having a single use is price inelastic because a change in price affects demand for the commodity only in that use.
9. Time period of consumption i.e. short run or long run.
In the short run, the demand for a commodity tends to be price inelastic because it is difficult for consumers to find substitutes while in the long run, the demand for the commodity is price elastic because consumers are able to learn the market conditions and look for substitutes.
10. Possibility of deferring consumption of the commodity.
The demand for a commodity whose use can be postponed to a future date is price elastic because an increase in price makes consumers to abandon the purchase of the commodity until the price reduces. On the other hand the demand for a commodity whose use cannot be postponed is price inelastic because an increase in price has little effect on quantity demanded.
11. Speculation about price changes
When the consumers expect the price of the commodity to fall in future, the current demand tends to be price elastic because consumers easily reduce the amount demanded when the price slightly increases with hope of buying in the future at lower prices. On the other hand if consumers expect a future price increase, the current demand for the commodity tends to be price inelastic because consumers continue buying even if prices are rising due to fear of purchasing at very high prices in the future.
12. Level of advertisement.
Demand for a highly advertised good is price inelastic because the persuasive adverts convince the buyers to continue buying the commodity regardless of the changes in price. However, demand for a less advertised commodity is price elastic because of the limited awareness of the public about the commodity.
13. Degree/ extent of convenience in acquiring/ accessing the commodity.
Demand for a commodity that is conveniently accessible is price inelastic because consumers find no need to look for substitutes in case of price increment while demand for a commodity that is difficult to access is price elastic because an increase in price forces consumers to look for substitutes.
CAUSES OF PRICE INELASTIC DEMAND
1. The commodity not being substitutable/ the commodity having no substitutes.
2. The commodity being a complement
3. Proportion of the consumer’s income spent on the commodity being high
4. The commodity being a necessity
5. The consumer’s income being high
6. The commodity being habit forming/ addictive
7. The commodity being durable
8. The commodity having one or few uses
9. Short run situation
10. The consumption of a commodity not being deferrable.
11. Consumers speculating a future price increase
12. The commodity being highly advertised.
13. The commodity being conveniently accessible.
ASSIGNMENT
Explain the causes of high price elasticity of demand in your country.
USES OF PRICE ELASTICITY OF DEMAND IN AN ECONOMY
The concept of price elasticity of demand is of great importance to producers and government when making decisions especially those that may affect price.
1. Producer (PPPAW)
a) Used in price determination.
Price elasticity of demand helps the producer to fix prices for the commodity so as to maximize revenue. For commodities with elastic demand, the producer profits more by charging a low price and for commodities with inelastic demand, the producer profits more by charging a high price.
NOTES
In case the price elasticity of demand for a commodity is unitary, the producer does not need to change his prices.
b) Used in price discrimination
For price discrimination to succeed there should be geographical separation of the market into submarkets and the price elasticity of demand for the commodity should be different in different submarkets. The seller charges a high price in the submarket with inelastic demand and a low price in the submarket with elastic demand.
c) Used to determine prices of joint products
The concept of price elasticity of demand is of much use in the pricing of joint products like wool and mutton, wheat and straw, cotton and cotton seed, meat and hides, etc. In such cases, separate costs of production of each commodity are not known and therefore the price of each is fixed on the basis of its elasticity of demand. That is why products like wool, wheat, meat and cotton having an inelastic demand are priced very highly as compared to their byproducts mutton, straw, hides and cotton seeds with an elastic demand.
d) Used to determine the intensity of advertisement.
The concept of price elasticity of demand provides a guideline to a producer about the amount of money to spend on advertisement. For commodities with elastic demand, the producer needs to spend large sums of money on advertisement in order to increase the sales since increasing prices reduces the revenue. On the other hand, little or no advertisement is required for commodities with inelastic demand since the producer can increase revenue by raising prices.
e) Used to determine the wage rate.
The concept of price elasticity of demand is important in the determination of wages of a particular type of labour. Labour producing a commodity with inelastic demand is paid a high wage because the producer can recover the cost of labour by increasing the price of the commodity. However labour producing a commodity with elastic demand is a paid a low wage because passing on the cost to consumers in form of increased prices reduces demand significantly hence causing a fall in revenue.
2. Government
a) Used to determine goods to be provided as public utilities.
Government’s decision to declare certain industries as public utilities depends on elasticity of demand for their products. The state usually takes over production of products whose demand is inelastic and are essential to the public. This is because if production of such products is left in the hands of private individuals, they tend to overcharge the consumers because their main goal of production is profit maximisation.
b) Used to determine the incidence of a tax.
When government imposes an indirect tax, it is either paid by the producer or the consumer or a combination of the two depending on the price elasticity of demand. For inelastic demand, the consumer pays more tax than the producer. For elastic demand, the producer pays more tax than the consumer. For unitary elasticity of demand, the tax is shared equally between the producer and the consumer. The producer pays the tax alone if demand is perfectly elastic and the consumer pays the tax alone if the demand is perfectly inelastic.
c) Used to determine the tax rate.
Government imposes indirect taxes so as to raise revenue. Government raises more revenue by taxing highly commodities with inelastic demand because such commodities are demanded irrespective of the price changes. However, low taxes are imposed on commodities with elastic demand to avoid causing a drastic fall in their demand and the tax revenue received from them.
d) Used while granting protection.
Usually, a subsidy or protection is given to only those industries whose products have elastic demand. This is because they are unable to face foreign competition unless their prices are reduced through a subsidy or by imposing heavy duties on imported goods so as to increase their prices hence making them unaffordable to the consumers.
e) It is a basis for the devaluation policy.
The main objective of devaluation is to improve the country’s balance of payments position. Devaluation makes imports expensive thereby reducing their importation and exports cheaper thereby encouraging and increasing their volume. The policy can only be successful if the price elasticity of demand for both imports and exports is elastic.
3. Consumers.
a) Helps a consumer to plan for his/her expenditure.
Consumers plan to spend more on commodities whose demand is price inelastic and less on commodities whose demand is price elastic.
ELASTICITY AND INCIDENCE OF A TAX
Incidence of a tax refers to the final resting place of a tax and it falls on either the producer or the consumer or a combination of the two depending on the price elasticity of demand.
Case 1: Taxation and perfectly inelastic demand
ab = total tax paid by the consumer.
When demand is perfectly inelastic, the total tax is paid by the consumer.
Case 2: Taxation and perfectly elastic demand.
ab = total tax paid by the producer.
When demand is perfectly elastic, the total tax is paid by the producer.
Case 3: Taxation and inelastic demand
When demand is inelastic, the consumer pays more tax than the producer as illustrated below.
abc = total tax
ab = tax paid by the consumer
bc = tax paid by the producer
Case 4: Taxation and elastic demand
When demand is elastic, the producer pays more tax than the consumer.
abc = total tax.
ab = tax paid by the consumer
bc = tax paid by the producer
Case 5: Taxation and unitary demand
When demand is unitary, the tax is shared equally between the consumer and the producer.
abc = total tax
ab = tax paid by the consumer
bc = tax paid by the producer
INCOME ELASTICITY OF DEMAND
This is the measure of the degree of responsiveness of quantity demanded of a commodity to a change in consumer’s income.
OR
It is the percentage change in the quantity demanded of a commodity due to a percentage change in the consumer’s income.
Where ∆Q = change in quantity demanded
∆Y = change in consumer’s income
Qo= original quantity demanded
Yo= original income.
INTERPRETATION OF INCOME ELASTICITY OF DEMAND
If Y.E.D is positive, the commodity is a normal good.
If Y.E.D is negative, the commodity is an inferior good.
If Y.E.D is zero, the commodity is a necessity.
Worked examples
1. Use the table below to answer the questions that follow;
a) Calculate the income elasticity of demand.
b) State the type of the commodity in question.
Solution
a) Given that;
Yo = 150,000
Y1 = 200,000
Qo = 50
Q1 = 80
b) The commodity is a normal good.
2. Use the table below to answer the questions that follow.
a) Calculate the income elasticity of demand.
b) State the type of the commodity in question.
Solution
a) Given that;
Yo = 150,000
Y1 = 200,000
Qo = 50
Q1 = 50
b) The commodity is a necessity.
Trial questions
1. Given that an individual’s income increased from shs 50,000 to shs 80,000 per month and this led to an increase in the demand for the commodity by 10%. Calculate the income elasticity of demand and comment on the type of the good.
2. Study the table below showing income and quantity demanded of commodity X and answer the questions that follow.
a) Calculate the income elasticity of demand for commodity X.
b) What type of commodity is X? Give a reason for your answer.
IMPORTANCE OF INCOME ELASTICITY OF DEMAND
1. A consumer is able to tell or predict the amount of a commodity which would be bought depending on the on the nature of the commodity. If it is an inferior good, less of it will be demanded following an increase in the consumers’ income. If it is a normal good, more of it will be demanded as ones income increases and if it is a necessity, quantity demanded remains constant irrespective of changes in the consumer’s income.
2. It helps in determining the type of a commodity i.e. inferior, necessity or normal good.
3. Helps the government in distribution of social utilities.
4. It helps importers in determining what to import.
5. Helps the government in policy making for example taxation.
6. Helps a seller / producer to predict future demand as income changes.
CROSS ELASTICITY OF DEMAND
This is the measure of the degree of responsiveness of quantity demanded of one commodity (X) due to a change in the price of another commodity (Y).
OR
This is the percentage (proportionate) change in quantity demanded of one commodity due a percentage change in the price of another/ related commodity.
Where ∆Qx= change in quantity demanded of commodity X
∆Py= change in the price of commodity Y
Py= original price of commodity Y
Qx= original quantity of commodity X
INTERPRETATION OF CROSS ELASTICITY OF DEMAND
Here we give the relationship between the two commodities.
If C.E.D is positive, the two commodities are substitutes.
If C.E.D is negative, the two commodities are complements.
If C.E.D is zero, the two commodities are unrelated/ there is no relationship between the two commodities.
Worked example
Given that the price of commodity X increased from Shs 50,000 to Shs 80,000 and this led to increase in quantity demanded for commodity Y by 10%. Calculate the cross elasticity of demand for the two commodities and state the relationship between them.
Solution
Given that;
Po = shs 5,000/=
P1 = shs 80,000/=
Quantity demanded for commodity Y changed by 10%
Trial questions
1. Given that an increase in the price of commodity X form Shs 1500 to Shs 1800 resulted into a change in quantity demanded for commodity Y from 600 units to 570 units;
a) Calculate the cross elasticity of demand
b) State the relationship between commodities X and Y.
2. If the price of commodity X falls from Ug. Shs 2,000,000 to Ug. Shs 1,600,000 per unit and the quantity demanded of commodity Y increases from 40,000 to 60,000 units,
a) Calculate the cross elasticity of demand.
b) State the relationship between commodities X and Y.
ELASTICITY OF SUPPLY
This is the measure of the degree of responsiveness of quantity supplied of a commodity to changes in factors which influence supply.
Under elasticity of supply, we shall only look at price elasticity of supply and cross elasticity of supply.
PRICE ELASTICITY OF SUPPLY
This is the measure of the degree of responsiveness of quantity supplied of a commodity to a change in its price.
OR
This is the percentage change in the quantity supplied of a commodity due to a percentage change in the price of the commodity.
INTERPRETATION OF PRICE ELASTICITY OF SUPPLY
1. Perfectly inelastic supply (P.E.S = 0)
This is where price changes do not affect the quantity supplied i.e. quantity supplied remains constant at different price levels.
2. Inelastic supply (0<P.E.S<1)
This is where a big change in price results in into a small change in the quantity supplied. This is common with agricultural products that take long to be produced.
3. Unitary supply (P.E.S = 1)
This is where a change in price results into an equal change in the quantity supplied.
This is an ideal situation which does not occur in reality.
1. Perfectly elastic supply
In this case, price of a commodity is constant at all levels of the quantity supplied. This situation does not exist in the real world.
Worked examples
1. The price of a commodity increased from shs 800 to shs 1200 per kg and the quantity supplied in the market increased from 2000kgs to 5000kgs. Calculate the price elasticity of supply.
Exercise
1. An increase in price from 60,000 to 90,000 led to an increase in quantity supplied of commodity by 50%. Calculate the price elasticity of supply.
2. An increase in price from shs 40/= to 400/= led to an increase in the quantity supplied of a commodity from 30kgs to Xkgs. If the price elasticity of supply is 2, find the value of X.
FACTORS THAT INFLUENCE PRICE ELASTICITY OF SUPPLY
1. Existence of stocks.
Availability of stocks held by producers and distributors makes supply elastic since as prices rise supply can be increased by drawing from the existing stocks. On the hand, absence of stocks makes supply inelastic because it is not possible to increase supply by drawing from the available stocks.
2. Nature of the commodity i.e. durable or perishable.
Durable commodities have elastic supply because they can be stored and as prices rise, supply can be increased by drawing from the existing stocks and a fall in price makes producers to store much of their products. However, perishable commodities have inelastic supply because as prices rise, quantity supplied cannot easily be increased since nothing was stored in periods of peak production and a fall in price does not reduce quantity supplied significantly since the goods cannot be stored for long.
3. Gestation period/ Length of the production process.
Goods that have a short gestation period have elastic supply because it is possible to adjust production in a short time while goods that have a long gestation period have inelastic supply because producers are unable to raise or reduce their output easily when prices rise or fall respectively.
4. Time period in production.
In the short run, supply is inelastic because some factors of production are fixed and output levels can be changed by only changing the variable factors of production like labour. However in the long run, supply is elastic because all factors of production are variable and hence firms are in position to either expand their production capacities or contract them to respond to price changes by varying the amount of each factor of production employed.
5. Degree of freedom of entry of new firms in the industry.
Free entry of new firms in the industry makes supply to be price elastic because an increase in price attracts other firms to join and increase production of the commodity and when prices and profits fall, they exit. However, restricted or blocked entry of new firms in the industry makes supply to be inelastic because when price increases, other firms cannot join the industry to increase output levels.
6. Objective of the firm.
Supply is inelastic for goods whose producers’ main objective is profit maximisation since they limit production and supply to force the prices upwards. However supply is elastic for goods whose producers’ aim at sales maximisation since more output is put on the market whenever prices increase so as to maximize sales.
7. The level of technology used in production.
High level of technology makes it possible to easily adjust output levels to match price changes and hence supply is elastic. However backward technology limits output levels thereby making supply to be inelastic since even if prices rise, output is not likely to follow suit.
8. Complexity of the production process
The more complex the production of a good, the more inelastic supply becomes due to the fact that a complex production process limits the ability of producers to especially increase output levels. Therefore for goods that are produced through a complex process like automobiles, supply is inelastic while for those which have a simple production process like textiles, supply is elastic.
9. Availability of factors of production/ level of supply of factor inputs.
High supply of factor inputs makes supply to be price elastic because it is easy to adjust factor combinations to alter quantity supplied in the market. However scarcity of factor inputs makes supply to be price inelastic because it is hard to adjust the factor combinations to respond to price changes.
10. Production capacity of the firms.
Operation of firms at excess capacity makes supply to be price elastic because it is possible for such firms to employ the redundant resources to increase output when prices rise. However operation of firms at full capacity makes supply to be price inelastic because there are no redundant resources that firms can exploit to increase output levels in response to a rise in price.
11. The cost of production.
High production costs make supply to be price inelastic because they act as barriers to expand output levels and despite higher prices in the market, firms find it hard to increase supply since it would require considerably higher amount of money. However low production costs make supply to be price elastic because firms can easily adjust their output levels as prices change in the market
12. Government policy of taxation and subsidisation.
Favourable government policy in form low taxes, high subsidies and other incentives makes supply price elastic because of the reduction in the average costs of production that enables the producers to increase output in response to a price increase. However, unfavourable government policy in form of high taxation and limited subsidies makes supply price inelastic because of the increase in the costs of production that makes it difficult for producers to increase output even if there is a rise in price.
13. Natural factors.
Favourable climatic conditions like reliable rainfall make supply of agricultural products to be elastic because more output can be put on the market in response to a rise in price. However unfavourable climatic conditions like prolonged droughts make supply of agricultural products to be inelastic because output levels cannot be increased even if there is a price increase.
14. Political climate.
Favourable political climate in an economy makes supply price elastic because production of a commodity is encouraged due to the confidence among producers in regard to national security. However, unfavourable political climate in an economy makes supply price inelastic since production is discouraged as the producers have fear for loss of their life and property.
15. Level of development of infrastructure.
Well developed infrastructure like good roads make supply to be price elastic because producers can easily increase supply in response to a price increase due to increased access to the market. However, poor infrastructure like bad roads make supply price inelastic because products are not available on time in response to price increments due to limited access to the market.
16. Degree of factor mobility
Mobility of factors of production makes supply price elastic because producers can easily switch resources to production of the commodity whose price has increased. However, immobility of factors of production makes supply price inelastic because producers cannot easily switch resources to production of the commodity whose price has increased.
17. Future price expectations.
Expectation of a future price fall relative to the current prices makes current supply of the commodity to be price elastic because producers sell more now to avoid making losses in the future when the prices have fallen. However, Expectation of a future price increase relative to the current prices makes current supply to be inelastic because producers supply less even if prices increase because they are waiting to sell at high prices in the future and make a lot of profits.
18. Price of a jointly supplied product.
A low price of a jointly supplied product makes supply of the commodity in question to be price inelastic because it discourages production of the commodity in question even if the price is increasing. For example a low price of maize flour makes supply of maize bran to be inelastic. However a high price of a jointly supplied product makes supply of the commodity in question to be price elastic because it encourages production of the commodity in question.
19. Price of a competitively supplied product.
A high price of a competitively supplied product makes the supply of the product in question to be price inelastic because it makes production of the commodity in question unprofitable. However, a low price of a competitively supplied product makes supply of the commodity in question to be price elastic because it makes it makes production of the commodity in question profitable.
Factors that lead to high price elasticity of supply in an economy
¨ Availability of stocks
¨ Durability of a commodity/ commodity being durable.
¨ Short gestation period/ commodity having a short gestation period
¨ Long run period in production.
¨ Freedom of entry of new firms into the industry.
¨ Objective of the firm being sales maximisation.
¨ Use of advanced/ efficient technology/ high level of technology
¨ Production process being simple
¨ High supply of factors of production/ factor inputs.
¨ A firm operating at excess capacity
¨ Low costs of production
¨ Government policy on production/ supply being favourable/ favourable government policy on investment/ provision of government incentives/ low taxation levels.
¨ Presence of favourable natural factors
¨ Political stability/ favourable political climate/atmosphere/ political climate in a country being favourable.
¨ Well developed infrastructure/ high level of infrastructural development.
¨ Expectation of future decrease in price of the commodity.
¨ High price of jointly supplied product in relation to the commodity in question.
¨ Low price of competitively supplied commodity in relation to the commodity in question.
Causes of price inelastic supply of agricultural products in Uganda
¨ Long gestation period of agricultural products.
¨ Bulkiness of agricultural products.
¨ Perishability of agricultural products.
¨ Unfavourable natural factors.
¨ High costs of production
¨ Poor surplus disposal system/ machinery.
Assignment
When may price elasticity of supply for a commodity be low in an economy?
CROSS ELASTICITY OF SUPPLY
This is the measure of the degree of responsiveness of quantity supplied of one commodity (X) to a change in the price of a related commodity (Y)