INTRODUCTION

Definition of Elasticity of Supply.

Elasticity of supply is measured as the ratio of proportionate change in the
quantity supplied to the proportionate change in price. High elasticity
indicates the supply is sensitive to changes in prices, low elasticity
indicates little sensitivity to price changes, and no elasticity means no
relationship with price.
The formula for elasticity of supply is:
Elasticity of Supply = (% change in quantity supplied) / (%
change in price)
When demand of the goods or product increase, the price will also
increase and the quantity supply will also increase in response. How fast it
increase depends on the elasticity of supply.
For example, when the pizza prices increase by 40%, the quantity of
pizzas supplied will also increases by 26%. Using the formula above, we
can calculate the elasticity of supply.
Elasticity of Supply = (26%) /
(40%) = 0.65
> 1, then supply is price elastic
< 1, then supply is price inelastic
= 0,

supply is
perfectly

inelastic
=

infinity,

supply

is perfectly

elastic

following a

change

in demand

ANALYSIS ABOUT ELASTICITY SUPPLY OF PALM OIL FROM MALAYSIAN PALM

OIL BOARD
Factor That Affect Elasticity of Palm Oil Supply
1) Price of competing vegetable oils
The price and demand of other vegetable oils such as soybean oil,
sunflower oil, rapeseed oil and corn oil can also affect the price of
palm oil. For example, bad weather such as scarcity in soybean
producer countries like the US, Brazil and Argentina will lower the
production of soybean oil therefore affecting soybean oil prices that
will help increase palm oil prices.
2) Weather patterns
As palm oil plantations are mostly in tropical countries such as
Malaysia and Indonesia, heavy rain could flood the plantations and
hinder harvesting. Dry spell on the other hand would affect growth
on the plantation thus lowering palm oil production.
3) Import policies of importing countries
Import policies and laws of countries that import palm oil too can
affect the price of palm oil. Australia for example had proposed a bill
to enforce labelling palm oil as product ingredient instead of
vegetable oil. If this bill was passed, consumers who believe that
palm oil is bad because palm oil plantations have contributed to
deforestation, could easily avoid products that contain palm oil. This
2

could lead to low demand for palm oil-based products thus affecting
the price of crude palm oil.
4) Changes in taxation and import duty
Dorab Mistry, an international palm oil industry analyst renowned
for his bullish CPO price forecasts, was reported recently as saying
that India should impose at least 10% import tax on palm oil to
protect its own farmers. This move, if implemented, will force palm
oil producer countries like Malaysia and Indonesia to increase the
export price of crude palm oil.

Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Average price
local delivery
basis

Production of
Fresh Fruit
Bunches

Elasticity of Production of
Palm Oil

RM per tonne

tonnes

and Average Price Local

Delivery Basis

1,407.50
1,045.50
578.50
773.00
1,029.00
822.00
700.50
836.50
916.50
890.00
1,283.50
1,472.50
1,191.50
1,358.00
2,377.50
1,449.50
996.50
894.50
1363.50
1544.00
1610.00
1394.00
1510.50
2530.50
2777.50
2236.50
2701.00
3219.00
2764.00
2371.00
2383.50

10,784,695
11,703,242
12,745,840
22,122,414
25,011,949
29,286,681
28,950,735
29,246,850
30,272,879
36,692,298
35,440,485
37,880,312
40,064,507
43,354,995
37,274,708
49,513,377
48,052,132
50,981,495
50,884,876
55,373,112
57,386,394
60,648,318
63,828,106
63,181,350
68,732,737
66,766,810
64,282,738
71,384,441
69,834,479
72,440,105
72,710,040

0.33
0.20
2.19
0.39
0.85
0.08
0.05
0.37
7.33
0.08
0.47
0.30
0.59
0.19
0.84
0.09
0.60
0.0036
0.67
0.85
0.42
0.63
0.015
0.90
0.15
0.18
0.58
0.15
0.26
0.71

DATA AND ANALYSIS

Table 1.1: Principal Statistics of Oil Palm Estates, 1984 2014 in Malaysia

Elasticity of Production of Palm Oil and Average Price Local Delivery Basis

Elasticity of Production of Palm Oil and Average Price Local Delivery Basis
Graph line of elasticity of production of palm oil

Based on the graph, the value of elasticity for year 1985 is 0.33 and for
year 1988 is 0.39. This shows that the elasticity is inelastic for that year.
However, there are increasing in the elasticity which is 0.06 which is
because there are decreasing in vegetable oil price. The decreasing of
vegetable oil affect the elasticity of supply for palm oil because vegetable
is a substitute product for palm oil.
Besides that, for the year 1989 the value of elasticity is 0.85 and for year
1993 is 7.33. On year 1989 the elasticity supply is inelastic but for year
1993, the elasticity of supply elastic. The increase of the elasticity is so
high on these because of the improvement innovation technology at year
1993.
Furthermore, for year 1994 until 1998, the elasticity also increase from
0.08 to 0.19 with different only 0.11. These year is inelastic but the
increasing of the elasticity can be seen because of changes in import
policies of some country. Some country change their policies and that
affect the elasticity supply for palm oil of the year.

From year 1999 until 2003, the value of elasticity supply is 0.84 and 0.67.
That shows there are decreasing in the elasticity. This is because the
amount of producer increase on these year. More producer will make price
decrease and this affect the elasticity of supply for palm oil.
For year 2004 until 2008 the elasticity supply value at 0.85 and 0.90
which is show increase in the elasticity. The factor that contribute to that
is the availability of the resources on that year.
Last but not least, year 2009 until 2014 shows that there are increase in
the elasticity which is from 0.15 to 0.71. The reason is there are ease of
storing stock for the year. If goods can be stocked with ease and have a
long shelf life, then supply will increase.

REFERENCES
BOOK.
Borges, W. G. (2016). Economics. Kuala Lumpur: SJ Learning.
WEBSITE.
Riley, G. (n.d.). Price Elasticity of Supply. Retrieved from Tutor2u:
http://www.tutor2u.net/economics/reference/price-elasticity-ofsupply