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SOME TENTATIVE SUPPLY ELASTICITIES FOR SHEEP AND DAIRY PRODUCTS*

SOME TENTATIVE SUPPLY ELASTICITIES FOR SHEEP AND DAIRY PRODUCTS* SOME TENTATIVE SUPPLY ELASTICITIES FOR SHEEP AND DAIRY PRODUCTS* JOHN L. DILLON Department of Economics, University of Adelaide Given the apparent assumption of a highly inelastic supply in much of our agricultural policy and the dearth of empirical estimates of " local " supply elasticities, it is perhaps worth recording-albeit diffidently-a few tentative estimates for sheep and dairy products. They are based on the fact that if we assume free competition and profit maximization, then a production function involving fixed factors Zj and variable factors Xi and of the form (1) Y = (nZjpj)( Z7Xipi) implies a normative elasticity of supply, q, for incremental product price changes given by (2) 7 = 4%/(1 - Z;SJ + [~v/(z'i - 1)1[~(8i/Pi)(dPi/d~,)I where p denotes price.l This elasticity refers to the adjustment in output required to attain a new profit maximizing equilibrium position relative to the input set {Xi} after an incremental change in p,,, assuming the price change is insufficient to shift any factors between {Zi} and {Xi}. 2 If the response period is relatively small, the second term of equation 2 will be negligible since the reaction of most pi to an actual or expected change in py will be http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Australian Journal of Agricultural Resource Economics Wiley

SOME TENTATIVE SUPPLY ELASTICITIES FOR SHEEP AND DAIRY PRODUCTS*

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Publisher
Wiley
Copyright
Copyright © 1960 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1364-985X
eISSN
1467-8489
DOI
10.1111/j.1467-8489.1960.tb00274.x
Publisher site
See Article on Publisher Site

Abstract

SOME TENTATIVE SUPPLY ELASTICITIES FOR SHEEP AND DAIRY PRODUCTS* JOHN L. DILLON Department of Economics, University of Adelaide Given the apparent assumption of a highly inelastic supply in much of our agricultural policy and the dearth of empirical estimates of " local " supply elasticities, it is perhaps worth recording-albeit diffidently-a few tentative estimates for sheep and dairy products. They are based on the fact that if we assume free competition and profit maximization, then a production function involving fixed factors Zj and variable factors Xi and of the form (1) Y = (nZjpj)( Z7Xipi) implies a normative elasticity of supply, q, for incremental product price changes given by (2) 7 = 4%/(1 - Z;SJ + [~v/(z'i - 1)1[~(8i/Pi)(dPi/d~,)I where p denotes price.l This elasticity refers to the adjustment in output required to attain a new profit maximizing equilibrium position relative to the input set {Xi} after an incremental change in p,,, assuming the price change is insufficient to shift any factors between {Zi} and {Xi}. 2 If the response period is relatively small, the second term of equation 2 will be negligible since the reaction of most pi to an actual or expected change in py will be

Journal

The Australian Journal of Agricultural Resource EconomicsWiley

Published: Dec 1, 1960

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