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Supply and demand
- 2. Supply and Demand ∗ Supply curve ∗ If a product sells at a low price, producers make little of it ∗ As the price rises, producers are willing to make more of the product ∗ The supply curve thus slopes upward Email-piyushkumarsharma852@gmail.com 2
- 3. Supply and Demand ∗ Demand curve ∗ When the price of a product is high, consumers don’t buy much of it ∗ When the price of a product drops, consumers are willing to buy more ∗ Thus the demand curve slopes downward Email-piyushkumarsharma852@gmail.com 3
- 4. Supply and Demand ∗ Price reaches an equilibrium at the intersection of the supply curve and the demand curve. ∗ If price is higher than this point: ∗ Producers will want to produce more ∗ Customers will want to pay less ∗ Thus price drops back to equilibrium Email-piyushkumarsharma852@gmail.com 4
- 5. Supply and Demand ∗ Consumers are pursuing their own best interest ∗ Producers are pursuing their own best interest ∗ “Invisible Hand” matches supply with demand ∗ Adam Smith Email-piyushkumarsharma852@gmail.com 5
- 6. Supply and Demand ∗ Works for ∗ Individual consumers and producers ∗ Aggregate of all consumers and all producers ∗ Aggregate Supply ∗ Aggregate Demand Email-piyushkumarsharma852@gmail.com 6
- 7. Shift in Demand Curve ∗ Demand curve may shift to the left ∗ Not willing to pay as much ∗ Thus price drops ∗ Due to drop in income ∗ Demand curve may shift to the right ∗ willing to pay more for product ∗ Due to: ∗ Increased population ∗ Increased income ∗ Changes in taste Email-piyushkumarsharma852@gmail.com 7 Demand curve shift to the left
- 8. Shift in Supply Curve ∗ If it becomes easier to produce a product, supply curve will shift to right ∗ More farmland ∗ More children for labor ∗ Fertilizer available ∗ Water available ∗ Technology available ∗ Price drops Email-piyushkumarsharma852@gmail.com 8
- 9. Engel’s Law ∗ The proportion of household budget spent on food decreases as income increases ∗ Wealthy spend less % of their wealth on food Email-piyushkumarsharma852@gmail.com 9
- 10. Bennett’s Law ∗ The ratio of starchy foods in the diet falls as income rises ∗ Poor eat more starchy foods ∗ Grains ∗ Root crops ∗ Wealthy eat more meat, fruit, vegetables Email-piyushkumarsharma852@gmail.com 10
- 11. Income Elasticity of Demand ∗ How much increase in demand for food is there with a 1% increase in income? ∗ Elasticity =1 if is 1% increase in demand ∗ Elasticity lower if is lower than 1% increase in demand ∗ Ex: East Java income elasticity for food = 0.58 Email-piyushkumarsharma852@gmail.com 11 East Java market
- 12. Income Elasticity of Demand ∗ Depends on income ∗ Brazil study ∗ Low income ∗ elasticity for rice = 2 ∗ High income ∗ elasticity for rice = 0.2 ∗ Low income people bought 2% more rice with 1% more income ∗ High income people bought nearly same amount of rice regardless of income Email-piyushkumarsharma852@gmail.com 12
- 13. Price Elasticity of Demand ∗ Price elasticity ∗ Change in consumption with a 1% change in the price ∗ As price increases, consumption decreases ∗ Thus price elasticity for a product is usually negative ∗ Ex: Indonesia ∗ Rice: -.63 ∗ Livestock: -1.73 ∗ Price elasticity less magnitude at high incomes: ∗ don’t care if price rises Email-piyushkumarsharma852@gmail.com 13 Costa Rica Livestock
- 14. Price Elasticity of Supply ∗ The change in supply in response to a 1% change of price ∗ Less response to food price in developing world ∗ Farmers less involved in market economy ∗ Lower inputs, therefore adjustments easier ∗ More risk adverse Email-piyushkumarsharma852@gmail.com 14 Honduras Farmer
- 15. Food Security ∗ Food security: ∗ “Access by all people at all times to enough food for an active, healthy life” ∗ Lack of food security is caused by lack of purchasing power Email-piyushkumarsharma852@gmail.com 15
- 16. Food Security Equation ∗ Amount of food need is less than or equal to money available to purchase food ∗ If household produces more food, will need to buy less Email-piyushkumarsharma852@gmail.com 16 Cooking tizet (corn mush) in Ghana
- 17. Food Security ∗ Depends on ∗ Number in household ∗ Ages ∗ Sex ∗ Working status ∗ Health status ∗ Pregnancy ∗ Lactation Email-piyushkumarsharma852@gmail.com 17
- 18. Household Food Production ∗ Depends on ∗ Amount of land ∗ Education of farmer ∗ Technology available ∗ Capital available ∗ Input prices ∗ Subsidies ∗ Taxes Email-piyushkumarsharma852@gmail.com 18 India farmers
- 19. Price of Food ∗ Depends on ∗ Quantity produced ∗ Population demand ∗ Income demand ∗ Taste preference demand ∗ Government ∗ Price controls ∗ Tariffs ∗ Subsidies ∗ Taxes Email-piyushkumarsharma852@gmail.com 19Ethiopia market