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How does the PED and PES of commodities affect producers in developing countries?
Explanation of PED (formulaic)
a) few substitutes
b) low proportion of income spent on commodities
a) Enhancing use of substitutes (rubber for example)
b) leading to stagnant/decreased demand
c) dependency of developing countries on commodities means that producers are price takers - and thus have an incentive to enhance output in order to enhance revenue, which enhances supply and lowers the price
Efficiency of exchange
equilibrium price and output.
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