Answer to Question #284567 in Microeconomics for keanu

Question

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

Answer 1

The term "primary commodity" refers to a resource that is available in its natural state. It could be in a raw or unprocessed state, requiring little or no processing to change shape before being used. Take, for instance, food crops.

Price elasticity of demand is the difference between the change in quantity demanded of a commodity and the change in price. It's the percentage change in quantity demanded divided by the percentage change in price, to put it simply. Primary commodities are typically price inelastic due to the following factors:

• There are no close substitutes. Even if the price of a main product rises, consumers will not respond by purchasing less of the commodity. They don't have any other options, therefore they'll keep buying the same amount of the principal commodity.
• The majority of basic commodities are necessities. People will buy primary commodities not because they want to be pampered, but because they can't live without them. As a result, even if the price of the commodity rises, they must still acquire it.