Discuss whether farmers will benefit from producing goods with low price elasticities of supply and demand.

Before we divulge further into the question, we define price elasticity of demand (PED) and price elasticity of supply (PES). PED is numerical measure of the responsiveness of demand of a product following a change in price of that product. Elastic demand means that a small change in price of the product will result in a large change of quantity demanded. On the other hand, if there is a large change in price but a much lesser change in quantity demanded, and then demand is price inelastic. The formula for PED is as follows: PES is a numerical measure of the responsiveness of supply to a change in the price of the product alone. PESs formula is: Formula with example of inelastic demand graph There are many factors influencing PED and PES. PES: focus on agriculture: supply is likely to be inelastic because there are time lags in the production process meaning that elasticity of supply is naturally very low in the momentary time period. Also, ability for the goods to perish quickly. PED: focus on low PED: means period of time is short, not allowing people to adapt to the higher price. Type of good, specifically food (agricultural) , demand is inelastic due to the necessity of the product with little or no substitutes. The inflexible nature of the goods means that farmers raise prices more sharply to respond to the surge in demand. From PED perspective, if the products have low price elasticity, farmers can benefit by increasing the price thus increasing revenue. They are able to enjoy greater producer surplus. Formula with example of inelastic demand and supply graph However, due to the inflexible nature of the goods, a surge in demand may result in farmers not being able to cope and increase supply drastically. Shifts in supply and demand cause major fluctuations in price and affects planning. An increase in supply with the same price leads to fall in revenue. Show supply curve On the other hand, the inelastic demand of the goods maintains the revenue when prices rise as quantity demanded decreases only a little and supply continues to fall. However, this statement is only for farmers who can still continue producing.

For the farmers to be able to cope with the surge in demand, efficiency must increase. However, this can cause large falls in price and revenue. If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity. To better see this point, we constrict the width of definition. We consider competition between farmers producing different crops. Supply is price inelastic due to the time needed to alter the type of crops produced. Demand considers physical limits. Consumers would want a variety of goods to choose from. So, it would be best for farmers to take the risk and produce many types to increase efficiency and supply flexibility. However, there is uncertainty and risk avoidance as they do not know which good would have a higher price as there are many substitutes to choose from. The less popular good would perish and cause a loss in profit. Thus, farmers benefit more from price inelasticity of supply. If we simply widen the view to generally agricultural products of vegetables, fruits, etc, we can see that there is virtually no substitute for such products.