PED - primary vs manufactured

PED - primary vs manufactured goods

Syllabus: Explain why the PED for many primary commodities is relatively low and the PED for manufactured products is relatively high.

$S:\triplea_resources\DP_topic_packs\economics\student_topic_packs\media_microeconomics\images\wheat.jpg$ Generally primary commodities have relatively low PED values (inelastic), while manufactured goods will tend to have higher values (more elastic).

So why is this? Remember the determinants of PED?

The availability of close substitutes in the market. The more substitutes available the greater the elasticity.
Is the good a luxury or necessity? Luxuries are more elastic in demand than necessities.
Proportion of income spent on them. Cheap items tend to have an inelastic demand.
Are they addictive? These obviously become price inelastic.
The time period. Elasticity tends to increase with time.
Number of uses

In the table below is a comparison of two products - wheat (a primary commodity) and laptops (a manufactured good) - against each of these determinants.

Determinants	Wheat	Laptop
Availability of close substitutes	Relatively few substitutes - effectively a necessity	Reasonable number of substitutes depending on precise task (e.g. games consoles etc.)
Luxury or necessity?	Necessity	Luxury
Proportion of income spent	Depends on nature of economy, but generally relatively low	Depends on nature of economy, but generally relatively high - a one-off purchase
Addictive	N/A	N/A (Unless you are a gamer?)
Time period	Used over a short period - consumed immediately	Used continously over a long period
Number of uses	Single use - food	Multiple uses - writing, searching, gaming...

This helps us see why primary commodities will generally have a lower elasticity value than manufactured goods which will tend to be higher value luxuries rather than necessities and therefore more elastic.

Microeconomics

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PED - primary vs manufactured goods