AGRICULTURAL ECONOMICS

1
AGRICULTURAL ECONOMICS
TODAY SUPPLY ELASTICITY - QUIZ 3WED INPUT
INPUT DECISIONS

• PART 4 PRODUCERS DECISIONS
• WK 6-2 SUPPLY ELASTICITY

2
REVIEW
WK6-1 SUPPLY CONCEPTS

• Chg in Quant Supplied

Chg in Supply
Concept
Move Along Curve
Shift of Curve
Cases
Move Up/Down Curve
Curve Shifts Rt/Lf
-- Technology -- Input Prices -- Sub Price --
Quota
Cause
Output Price Goes Up/Down
Prod Same Q _at_ Higher Price
Conseq
Prod More _at_ Same MR
Slope
Relationship
Positive
Direct
Chart
3
Part 4 Producers Decisions
Topic A One Resource One Product Relationships

• Wk 5-1 Production Functions
• Wk5-2 Optimum Production Points
• Wk5-3 Cost Concepts
• Wk5-4 Cost Graphs
• Wk5-5 Individual Market Supply
• Wk6-1 Supply Concepts
• WK6-2 SUPPLY ELASTICITY

4
Wk 6-2 Supply Elasticity
Learning Objectives
After This Lesson, The Student Should Be Able To

• Define, Derive And Interpret A Price Elasticity
  Of Supply Coefficient.
• 2. Define, Derive And Interpret A Cross-price
  Elasticity Of Supply Coefficient.
• 3. Derive, Define Interpret Producer Surplus

5
I. Price Elasticity Of Supply
435
Define, Derive And Interpret A Price Elasticity
Of Supply Coef.
1
Obj

• A. Concept

How Sensitive Quantity Supplied Is To Changes In
Its Output Price
B. Cases
Description
Coeff
1. PEs ? 2. PEs gt 1 3. PEs 1 4. PEs lt
1 5. PEs 0
Perfectly Elastic Supply
Elastic Supply
Unitary Supply Elasticity
Inelastic Supply
Perfectly Inelastic Supply
6
Define, Derive And Interpret A Price Elasticity
Of Supply Coef.
1
Obj
P
If This Is The Case, What Drives The Price Of
Soybeans Up?
S1
P2
A Increase In Demand
P1
D2
D1
S1
Q
Once The Harvest For Annual Field Crops Is
Completed, The Supply Curve For An Individual
Producer Is Very Inelastic
Once Nursery/Floral Crops Are Planted, The Supply
Curve For A Timely Harvest By An Individual
Producer Is Very Inelastic. Is This True For A
Retailer?
7
C. Calculation
Define, Derive And Interpret A Price Elasticity
Of Supply Coef.
435
1
Obj

• 1. Segment (Arc) () Change In Quant
  Supplied
• Percent() Change In Price
• (Qsb - Qsa) / (Qsb Qsa)/2
• (Pb - Pa) / (Pb Pa)/2
• Difference In Quantity Supplied Pts
• Average Of Quantity Supplied Pts
• Difference In Output Price Pts
• Average Of Output Price Points
• 2. Point ?Q/?P P/Q (Calculus)

8
D. Causes
436
Define, Derive And Interpret A Price Elasticity
Of Supply Coef
1
Obj

• 1. Easy Production Adjustments gt
  _______ Elasticity

Greater
2. Longer The Time, The Greater The Supply
Elasticity
Hogs Or Cattle?
Golf Rounds Or Mums?
Reproductive Age
E. Consequences
Gestation
1. In Percentage Terms Condition Coeff Price
Quant Revenue
15
10
gt1
5
Elastic
1
5
5
10
Unitary
6
lt1
1
Inelastic
5
9
2. On Total Revenue
Define, Derive And Interpret A Price Elasticity
Of Supply Coef.
1
Obj
Condition Coeff Price Price
Increases Decreases
Elastic

• PEs gt1

Total Rev Incr
Total Rev Dec
PEs 1
Unitary
Total Rev Incr
Total Rev Dec
Inelastic
Total Rev Incr
Total Rev Dec
PEs lt 1
A. Total Revenue Moves In Same Direction As
Price Changes
10
II Cross Elasticity Of Supply
Define, Derive Interpret A Price Cross
Elasticity Of Supply Coef.
2
Obj

• A. Concept

How Sensitive The Supply Of Good X Is To The
Price Of Good Y
B. Classification
Coefficient
Classification
CEs gt 0 ()
Complement Good
Competitive Good
CEs lt 0 (-)
11
C. Calculation
Define, Derive Interpret A Price Cross
Elasticity Of Supply Coef
2
Obj

• 1. Arc Chg In Quant Supplied Of X
• Percent Change In Price Of Y
• Ces (Qsxb - Qsxa) / (Qsxb Qsxa)/2
• (Pyb - Pya) / (Pyb Pya)/2
• Chg Between X Quant Supplied Pts
• Ave Between X Quant Supplied Pts
• Change Between Y Price Points
• Average Between Y Price Points
• 2. Point ?Q/?P Pi/Q (Differential Cal)

12
D. CONSEQUENCE (Outcome)
Define, Derive Interpret A Price Cross
Elasticity Of Supply Coef.
2
Obj
Classification Coeff
Price Of X Inc
Price Of X Dec
Complement

• Quant Of Y

Quant Of Y
Increases
Decrease

Competitive
Quant Of Y
Quant Of Y
-
Decrease
Increases
13
E. Cases
Define, Derive Interpret A Price Cross
Elasticity Of Supply Coef.
2
Obj
Expected CEs Coefficient

• Commodities

Soybeans Soybean Meal
-
Corn Soybeans

Corn Ethanol
14
1. Greater The Resource Substitution, Greater
The Cross Supply Elasticity
Define, Derive Interpret A Price Cross
Elasticity Of Supply Coef.
2
Obj
F. Causes

• Enterprises Degree Of Elasticity

High
Corn Vs Soys
Fruit Crops Vs Corn
Low
High
Sheep Vs Cow-calf
Depends
Dairy Vs Cow-calf
15
Wk6-1 Supply Elasticity

• Price Elasticity Of Supply

Cross Elasticity Of Supply
Concept
How Sensitive Quantity Supplied Is To Changes In
Its Output Price
How Sensitive The Supply Of Good X Is To The
Price Of Y
() Change In Quant Supplied Percent() Change In
Price
Chg In Quant Supplied Of X Percent Change In
Price Of Y
Calc
PEs ?
1. Complement
CEs gt 0 ()
Classes
1. Perfectly Elastic
2. Elastic
PEs gt 1
CEs lt 0 (-)
2. Competitive
3. Unitary
PEs 1
4. Inelastic
PEs lt 1
5. Perfectly Inelastic
PEs 0
1. Ces gt 0
Px Inc
Qy Inc
ConseqOutcome
Pes lt 1
P 4
Q 2
Tr 6
2. Ces lt 0
Px Inc
Qy Dec
Pes 1
P 4
Q 4
Tr 8
Pes gt 1
P 4
Q 6
Tr 10
Cause
1. Easier Production Adjs gt Greater Elasticity
Greater Resource Substitution, Greater Cross
Supply Elasticity
2. Longer The Time, Greater The Supply Elasticity
16
NEXT TOPIC
0
OPTIMUM USE OF TWO INPUTS