Economists often talk about elasticities when discussing the responsiveness of one economic variable to another. For example, a demand elasticity describes how much the quantity demanded of a product changes when its price changes. Four factors affect demand elasticity: (1) the availability of substitutes; (2) whether the good is a luxury or a necessity; (3) the share of income spent on the good; and (4) the amount of time elapsed. The more substitutes for a given good, the greater the share of income spent on the good, the more time elapsed, and the less the need for the good, the more responsive changes in quantity demanded will be to price changes.
Elasticities apply to international trade too. Price increases for U.S. agricultural goods relative to competitors will reduce U.S. export quantities. But how responsive are importers of U.S. agricultural goods to relative price changes? A recent paper by researchers at the University of Tennessee and published in the American Journal of Agricultural Economics tackles this question. The paper calculates estimates of short-run “compensated” price elasticities, the substitution effect, and long-term “uncompensated” elasticities, captures both substitution and income effects, for U.S. agricultural export commodities. Elasticities greater than one are considered elastic, meaning the percentage change in quantity demanded is large relative to the price change. Elasticities less than one are considered inelastic. The quantity demanded does not respond much to price changes. Demand elasticities are negative because consumers demand less when prices increase.
Figure 4 provides estimates from the paper of compensated and uncompensated price elasticities for U.S. agricultural exports. Nebraska’s top three agricultural export products, beef, corn, and soybeans are included in the chart. The elasticities for U.S. corn and soybeans in the short-term are inelastic, meaning quantity demanded in the short-run doesn’t change much given a price change. However, over the long-term, the demand for both commodities is elastic. The substitution, time, and real income effects combined result in a greater responsiveness of quantities imported to price changes. The uncompensated elasticity for soybeans is near -2.0 and near -1.5 for corn. Changes in U.S. corn and soybean prices have marked effects on quantify demanded in the long-term. On the other hand, the demand for U.S. frozen beef is inelastic in both the short and long-term, less than 1.0 in both instances, meaning changes in price do not have large impacts on quantity demanded. Beef exports in 2024, when volume exported fell minimally despite higher prices, provide evidence of this inelasticity.
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