Rihaab

Tajmohamed 11R
Unit 3: Paper 1 Prac7ce 3

Deni&ons:
Elas%city: is the responsiveness of a variable to changes of the price, or any variables
determinant.
Price Elas%city of Demand (PED): there is a large responsiveness of quan;ty demanded than the
price, demand referred to as being price elas;c.
Goods: are objects that can sa;sfy peoples needs and wants. E.g. Hair products.
Commodi%es (primary commodi%es): are raw materials that can not be subs;tuted and are
inelas;c. E.g. fuel, diamonds, gas etc.
Manufactured goods: are goods that has many subs;tutes. E.g iPhones, laptops..brands etc.
Necessity: is among the determinants of PED; it is classied as the need that humans needs to
have; and would spend any amount for it no maEer how high the price is.
e.g. life medical aid and drugs.
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Response to Ques&on 1:

The price elas;city of demand of primary commodi;es are oHen rela;vely low, because
these goods are raw materials (such as diamonds,coal,gas etc) and are necessi;es for the
consumers in order to manufacture secondary goods through the primary commodi;es. This
concludes that the primary commodi;es are rela;vely low resul;ng to be a inelas;c material of
goods; meaning that no maEer the change in price (usually increase) it does not signicantly
impact the quan;ty demanded of the good as it is a necessity. However, the PED of the
manufactured goods are oHen rela;vely high, considering that there are some goods that are
necessity but mostly there are many subs;tutes found in the manufactured goods (such as;
laptop, cell phones, iPods and more) than there are found in the primary commodi;es. Through
this, it is jus;ed that primary commodi;es are inelas;c and manufactured goods being more
elas;c. To strengthen this theory, an example of primary commodi;es of coee beans is shown
below.

Fig i. Inelas7city of coee beans.

As shown from the graph above; the primary product here is the coee beads that are
produced in Ethiopia. The people who are interested to buy primary products are the consumers
and this is because they want to manufacture a secondary product. In case, as the coee beads
being primary goods, the consumers use this to manufacture coee bags. Therefore, the coee
beads are a necessity in a coee market situa;on. And if the price of the coee beads increases-
like shown in the graph from $3 to $5 the consumers will s;ll con;nue buying the good but with a
lesser quan;ty- from 9 packets to 7packets. This concludes that the primary product-coee beads
is inelas;c, and is rela;vely low PED.

To summarize, we are able to conclude that primary commodi;es are rela;vely low due to its
low degree of being subs;tuted.