Answer to Question #105599 in Macroeconomics for harsh

Question

explain two reasons why the demand for primary commodities might be price inelastic

Answer 1

Primary commodity – It is a material available in its natural state. It might be in raw or unprocessed form and might require little or no further processing to change form before it is utilized. For example, food crops.

Price elasticity for demand – It is the change in quantity demanded of a commodity compared to the price change. Simplified; it is the percentage change in quantity demanded divided by the percentage change in price.

Primary commodities tend to be price inelastic because;

1. They do not have close substitutes. Even if the price of a primary commodity goes up, buyers will not respond by reducing the quantity of commodity they purchase. They have no other alternatives, and thus, they will continue to buy the same amount of the primary commodity.
2. Most primary commodities are necessities. People will buy primary commodities, not for luxury, but because they cannot do without them. Therefore, if the price of the commodities increases, they still have to purchase the commodity.