Another Ib Ia

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  • Topic: Supply and demand, Elasticity, Price elasticity of demand
  • Pages : 4 (863 words )
  • Download(s) : 311
  • Published : May 9, 2013
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Commentary on: Pecan market is a-crackin’
In the last few years the economic growth of China has caused the demand (and supply) of all kinds of nuts, especially pecans, to rise and producers are facing a challenge meeting the soaring demand, says “The Globe and Mail” October 18th 2010. Demand and supply are the quantity of a good or service that consumers and producers are willing able to purchase and produce at a given price in a given time period. Equilibrium is a state of rest, self-perpetuating in the absence of outside disturbance. At this price, the quantity demanded equals quantity supplied. Price elasticity of demand (PED) is the responsiveness of demand in change of price of the product of the consumer. Price elasticity of supply (PES) is the responsiveness of supply in changes in price of the product. DC1

Q1
Quantity of pecans/ Million pounds
DC
SC1
SC
Price of 1 pound of pecans/ US $
Chinese demand and North-American supply of pecans for China: 5
100
PE
P1
Q2
DC1
Q1
Quantity of pecans/ Million pounds
DC
SC1
SC
Price of 1 pound of pecans/ US $
Chinese demand and North-American supply of pecans for China: 5
100
PE
P1
Q2
Here, China’s demand for pecans and North-America’s supply for pecans to China are shown:

Since pecan isn’t a necessity product and there’re many other kinds of nuts as substitutes, we assume that PED is elastic (PED>1); percentage change in price is less than percentage change in demand. However, on the other hand, since pecans are a commodity, PES is likely to be between 0 and 1, so it’s inelastic. Supply of commodities is costly and difficult to increase because much land is needed and it takes time to grow commodities. At the initial point, five years ago, both supply and demand for pecans were at 5 million pounds, price was PE and we had a market equilibrium. Since then, Chinese demand for North-American pecans has increased and there’s been a positive shift in the demand curve, from DC to DC1. When...
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