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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
The Australian Journal of Agricultural Resource Economics – Wiley
Published: Dec 1, 1960
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