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Elasticity

 

            Less Developed Countries (LDC's) can be defined as countries that have low levels of GDP and income per head. These countries usually have a heavy dependence on the primary sector of the economy. The price elasticity of demand and the price elasticity of supply are highly important factors for producers of primary commodities in less developed countries.
             Price elasticity of demand is important to producers of primary commodities because these commodities often exhibit a downward trend over time and are prone to fluctuations. Many commodities are necessities and have a low income elasticity of demand. As a result when consuming nations experience increases in their incomes, their demand for commodities grows but at a proportionately smaller rate when compared with demand for goods which have a high income elasticity of demand (technology). Fluctuations in the market prices which affect demand for primary commodities are mainly due to changes in exchange rates and changes in foreign government protectionist measures.
             Price elasticity of supply is also important to producers of primary commodities. As most primary commodities are agricultural, it is not easy for producers to make more in the short term if there is an increase in demand, this makes supply relatively inelastic. In the long term however it is possible for excess factors of production to be put to work. Due to the largely agricultural nature of primary commodities producer substitutes are difficult to make in the short term. For example if a farmer has planted and harvested potatoes and there is a large increase in the price of carrots he or she is unable to produce carrots in a short amount of time and must wait for the following season.
             In conclusion it may be said that the price elasticity of demand and the price elasticity of supply are highly important factors for producers of primary commodities in less developed countries.


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