Article | Agricultural products are normal goods with demand and supply being price inelastic.

Running head: ECONOMICS
Economics
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ECONOMICS
Paragraph A
Agricultural products are normal goods with demand and supply being price inelastic.
Hence, a small change in the quantity demanded or quantity supplied results in higher change in
prices. The amount of substitute goods is higher in the agricultural market. As it is a necessity
good, with inelastic demand, price changes are significant when there are more substitutes
available in the market (Thong 2019).
On the other hand, the supply of agricultural products is highly variable and depend on
various unpredictable factors, like, weather conditions, perishability and seasonality (Reed and
Saghaian 2018). Weather conditions affect the supply most, as good weather can lead to large
harvest of a crop and similarly, a sudden natural calamity or unusual weather events like early
frost, too much rainfall or drought can damage the supply of a crop of a year. Moreover, many
agricultural products are perishable, such as, fresh fruits and vegetables. Producers accept a
lower price for those goods that have very short shelf life. Seasonality is another factor causing
fluctuations in agricultural product prices. The products that are available only in a particular
season, face lower price during the season, for example, mangoes and oranges, but during off-
season, the price of those goods remains high due to import duties and transportation costs. Due
to inelasticity, when supply of agricultural products changes due to the above mentioned factors,
the effect on price becomes significant (Baffes and Haniotis 2016).
On the other hand, manufactured products do not face uncertainties like weather
conditions, perishability or seasonality, which could affect the supply considerably. Secondly,
manufactured goods are price elastic, hence, a small change in price could lead to large changes
in quantity demanded and supplied, which could affect the revenue and profit of the firms
significantly (Kobayashi 2017). Therefore, price fluctuations are higher for agricultural products
than for manufactured goods.