Question

Why are agricultural prices highly variable? Does elasticity matter? Does a long term view differ from the short term? Describe elasticity and the typical assumptions made about the elasticity of agricultural production and food demand.

Answer 1

. Generally low elasticity of supply is considered to be natural for agei- culture, because of the sectors stro- ng dependance on external factors. This fact entails a number of implications, determining largely a di- stinct & special nature of agricul tere in a market economy. The low elasticity of the supply of agricultural commodities is also believed to be the channel of spreading economic anses in agnoultare. Due to the low aasticity of demand, agricultural producers are not able to respond appropriately to dedins în demand & prices, which causes overproduction of agrául twal commodities & depends - the imboyance. moreover, this mechan nism gets asymmetrically, affecting

technically a olvanced P to a greater extend smouler Farms. The bigger farmers due to the more ang alvanced production methods are in fact able to adjust flexibly their supply to the market's price conditions. If the price elasticity. of demand is lower than supply to elasticity. In the case of artifici ally maintained i high prices, more than proporfonal inonase in production occurs i the crisis of over production i depending the low piña elasticity of the supply of agricultural raw matenaus can be also considered as determined of decline in the relation of input a output prces. Dedining agricutural production elastin city leads to price volatility, greater than production volatility.