A-Level Economics Question Analysis Topic: Economics - Elasticity
Discuss the policies that a government might adopt to increase the price elasticity of supply of agricultural goods in an economy and consider which policy is likely to be the most effective.
In agricultural markets, price elasticity of supply is particularly important. Price elasticity of supply (PES) quantifies how quickly a change in price affects the quantity supplied.
Producers frequently find it difficult, if not impossible, to raise crop yields or move to more profitable crops when prices rise for legitimate meteorological and geographic reasons. When prices rise, producers might not have the extra land or the weather might not permit them to cultivate a crop. For instance, despite maize's rising price, coffee or tea growers in Brazil or Kenya cannot overnight switch to growing corn. Even if they could, it would take some time, and there would also be a chance that prices had dropped.
As a result, the government may employ supply-side policies in an effort to boost the supply of agricultural products' price elasticity. Free market supply-side policies include measures to boost market efficiency and competition. Before deciding whether supply-side measure will be more successful, it is important to take into account a number of factors.
To encourage farmers to maintain sufficient stocks, the government can directly supply them with better storage facilities. This will allow companies to enhance their stock levels. (such as dried fruits and vegetables). In order to facilitate the storage of perishable agricultural products (such as fruits and vegetables), the government can also offer improved refrigeration facilities. Additionally, the government can provide farmers with incentives so they can spend money on better storage facilities.
Stockpiling allows businesses to quickly react to changes in demand and price. PES will rise if enterprises are assisted in stock building.
Some businesses that manufacture agricultural products, such as ethanol or organic agricultural products, may experience labor shortages, particularly if the operation calls for skilled labor. For instance, the availability of appropriately skilled labor may be a constraint on the supply of more biofuels following a growth in demand. training programs might be implemented by the government to promote their occupational labour mobility by teaching them new skillss.
An agricultural business may quickly adapt to increases in demand and price for agricultural products if there is a robust labor supply.
Benefits may be reduced by the government, which may tempt the unemployed to accept agricultural occupations that only require minimal training. Free mobility of labor can also help businesses address labor gaps, especially in low-skilled positions like harvesting fruit.
A ready supply of labor will enable agricultural producers to react rapidly to price swings. For instance, if the price and demand for apples increase, producers will be motivated to increase their supply of apples quickly. However, this can only be done if there is an adequate supply of labor to harvest more apples.
Of course, over time, agricultural goods producers can boost their output by investing in additional capital equipment and frequently taking advantage of technical advancements. Government loans would encourage agricultural companies to invest in better perishable commodities storage facilities and technologies.
A subsidy is a quantity of money that the government gives directly to businesses in order to promote output and consumption. Producers' incomes are increased as a result of subsidies. Consequently, agricultural producers are encouraged to raise their yield. As a result, the amounts of stock available rise as a result of the higher output. As a result, the response of the quantity delivered to price changes will rise. The supply-side price elasticity of demand will rise.
For businesses in the private sector to conduct R&D, the government may offer incentives. For instance, awarding patents to protect fresh inventions like improved pesticides. This might motivate farming companies to develop innovative farming techniques.
Certain out-of-season fruits and vegetables can now be supplied by agricultural producers thanks to technological advancements like greenhouses. Because they are not dependent on weather, producers can react faster if the price of such commodities increases.
Agricultural products will be more pest-resistant thanks to better insecticides. More stock will be able to be built by producers. Agricultural producers will be able to respond to price shifts more quickly if they can store perishable goods for extended periods of time.
The supply and distribution of agricultural products from other countries would improve as a result. This could be especially helpful for providing out-of-season goods rapidly. As a result, suppliers would be able to react to price changes more quickly.
Roads and railroads can be improved as can other transportation infrastructure. This will shorten the time it takes to transport agricultural products, which are frequently perishable. A more responsive supply to price changes could also benefit farmers via improved irrigation and communications networks.
These measures, however, are not always successful in raising the price elasticity of supply for agricultural products.
Some items, such as foods having a limited shelf life like tomatoes and bananas, cannot be stored. Further extending the shelf life of these products can be challenging. It might be detrimental to perishable agricultural products to keep surplus supplies.
Some programs, like those involving funding for research and development and education, are costly and take a while to take impact. They could have no impact on the economy for 20 to 30 years.
In conclusion, lowering trade barriers and enhancing trade infrastructure would be the best course of action to increase the price elasticity of supply for agricultural products. Furthermore, there won't be much of a delay. If prices rise, a nation may easily import more fruits and vegetables. For instance, if India's climate is unfavorable and harvests are low, agricultural products can easily be imported from nearby nations with better weather. The price elasticity of supply will generally increase significantly.
End of analysis. Great!