Microeconomics Take Home Quiz

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Take-home Quiz

The world food prices have risen rapidly and they are higher than its’ actual value. According to the demand curve shifters. In this article, there has been an increase in demand in the world food market. The first shifter is the number of buyers, the growth of China and India cause a large population, which demand more food. Second, the price of complement related goods. The cost of fertilizer rose up, which lead to the increasing of food demand. From the supply curve shifters, in this article, there has been a decrease in supply in the world food market. The first shifter is the input price is higher, the resource of making fertilizer--oil is more expensive which pushes up the cost of inputs. Second, the number of sellers is decrease. Even if there is a good guess that the technology will help the production raise by 70% by 2050, however, the urbanization cause little unfarmed land to bring into production, which means there is less land and less people producing food in the future. Third, the expectations are not optimistic. There are some nature disasters over the world food production: drought in China, Russia and Argentina; floods in Canada and Pakistan, Climate change. These disasters lead to food production rise more slowly. So the expectation to the future is unoptimistic. Countries ban export to maintain their own supply; panic causes the restocking grain reserves. Outside agriculture, weaker dollar makes restocking and financial speculation make prices unstable. The pessimistic expectation of future leads to the less supply in the market.

Supply& demand graph

The possible solution
1. Targeting help to the poorest, for example, the conditional cash-transfer programs. This could decrease buyers’ demand by increasing their income. 2. Removing trade barriers, cutting subsidies and lowering tariff walls round rich country. Lower the tariff will lower the inputs and cost of food production, so it’s benefit for increasing supply. 3....
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