ECONOMICS

PRESENTATION
Why do primary commodities have a low
PES
• Definition: PES refers to the measure of responsivess of supply of a good to a change in price.
• Low PES: Low supply due a low price which doesn’t encourage suppliers to buy
• High PES: High supply which implies an increase in supply as suppliers will want to produce more to be
able to sell more in oth price and quantity, leading to an increase in their total revenue
• Supply and price are said to have a positive relationship meaning that an increase in price is likely to cause
an increase in quantity supplied and therefore PES. This is due to the fact that if the price increases,
suppliers will like to produce and supply more as they will be abe to sell more both in terms of quantity
and price, resulting into an increase in their total revenue.
• Supply will be said to be elastic in a case where price lower. Low prices mean low supply as there will be
less goods produced by the suppliers as they understand they will only perform minimum profit. This way,
supply is often to stay low and steady.
• On the other hand, supply will be inelastic in case of higher prices. It is more likely then for suppliers to
increase their supply in response to this. The increase in price been an asset to increase their total
revenue, they can increase it furthermore by increasing their quantity supplied to be able to sell more at a
higher price. Here, supply is likely to often change and likely by increasing
• Primary commodities refer to raw materials which are been extracted and used in production of
different goods, facilities and infrastructures. These could be crops like wheat, rice, corn etc. ,
metals like aluminium, copper, iron etc. , livestock like cows, pigs, goats etc. Most energy
resources also like crude oil coal are been concerned. They also involve forestry products like
timber
• These goods are goods which production are as of the primary sector. Been the less developped
and engaged with less specific skills and extra knowledge, it is usually said the « cheapest »
among the three sector of production, which explains the price of these compared to
manufactured products and most services.
• PES of a good might often depend on their demand as well as their
price. Primary commodities usually been necessities, they often have
fixed prices as its demand is inelastic and often doesn’t change. This
is explained by the lack of subsitutes of those as well as absence of
particular quality variations. As the demand stays steady, the price
too. The price been stagnant it doesn’t encourage suppliers to
poroduce more of it as they might end up having a surplus which
might be a hindrance to their total revenue