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Price differenccR due to location nnd quality _________________________ _ 106 106 TECHNICAL BULLETIN 1204, U.S. DEPT. OF AGRICULTURE desired long-run equilibrium level. If a complete adjustment is made in one time period, the s110rt-run and long-run e1n.8'~icities would be equal. The long-run elasticity exceeds the short-run elas ticity when more than one time period is required to adjust to the long-run equilibrium level. As producers can adjust so rapidly in the eg~ industry, it seems unlikely that the long-run elasticity would be so cliffe rent from the adjustment producers can make in one year to a price change, except in response to a, price increase that might encourage expansion beyond the existing capacity of the industry. Equations fitted by both the simultaneous and least squares ap proaches, as well as alternative formulations, were used to forecast values of variables in the egg industry beyond the years for which the equations were fitted. Based on a comparison of the simultane ously estimated reduced form equations with the least squares struc tural equations, better estimates of the annual quantity variables (domestic egg consumption, farm egg production, average number of layers on farms, and number of layers sold) appear to be ob tained from the simultaneous approach. But better estimates of the January-June quantity variables (domestic egg consumption, January-.Tune, and net into-storage movement, January-June) and the price variables (annual retaj} price, annual farm price, average January-June retail price, and average January-June farm price) appear to be obtained by the least squares structural equations. The simultaneously estimated reduced form equations express the variable to be estimated as an algebraically derived weighted. sum of the variables in a model that are taken as known. In making the algebraic transformation to the reduced form equations, the co efficients obtained from fitting each structural equation by the method of limited information are used. ConsequEntly, the reduced form equation contains more variables than appear in a structural equation. For example, the estimated values of egg consumption (presented in table .26) based on the simultaneous approach reduced form equations for model II of the egg industry are a weighted sum of 13 variables while the estimates from the least squares structural equations are based directly on the three variables specified as known in t1le least squares structural relationship. Other comparisons that can be made are discus!'led on page 95 and some indication of the results of tl10se comparisons are made.

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