Answer to Question #2822 in Macroeconomics for albriar
The demand for primary products appears to be less elastic with respect to both price and income than the demand for manufactured goods. How would you explain this?
For the most manufactured goods elasticity of demand is bigger than for primary products. This is explained by the following. Elasticity of demand depends on the mobility of resources − the possibility of moving between different areas of alternative primary products. The main determinant affecting the elasticity of demand at a price or income is the length of time, which manufacturer requires to respond to this change in price of raw materials or his income. This means that the more manufacturer& needs to adapt to these changes, the less the elasticity of demand for primary products is. This is because the producers’ reaction for price increasing for a certain type of primary products or reducing their income depends on their ability to change their manufacture process by reducing the use of more expensive raw materials or reorienting their activity to another product that uses raw materials, for which prices are constant. But a resources& redistribution takes time: the more time is needed, the harder it will be to abandon the use of raw materials that become more expensive for the manufacturer. So, the more difficult is changing the output, the smaller the elasticity of demand is. On the other hand, consumers, who demonstrate the demand for the manufacture goods, can easier find another distributor with the same or similar product, than manufacturers change their production process. That’s why the demand for manufactured goods appears to be more elastic with respect to both price and income than the demand for primary products.