Ib Economics Internal Assessment

Topics: Supply and demand, Price elasticity of demand, Microeconomics Pages: 2 (768 words) Published: October 2, 2012
The article discusses the effects of a severe flood in the areas of Thailand to the rice production. The rice production falls to 22 from 23 million metric tons. Supply is quantity of goods and services that producers are willing and able to produce at a given price and time period. The decrease in supply of rice in Thailand is shown by the following graph: MARKET OF RICE IN THAILAND

The graph above shows that the effect of flood in Thailand decreased the rice crop’s supply. The supply curve shifted to the left from S1 to S2, moving the equilibrium point from point E1 to point E2. The equilibrium price then rises from P1 to P2 and the equilibirum quantity moves to the left by 1 million metric ton. The increase in the price of rice brought advantages to the country. One of it is the increase in the total revenue of rice producers. Rice is a commodity good where the price elasticity demand is inelastic. Price elasticity demand is the responsiveness of quantity demand to the change of price. Inelastic refers the condition where the quantity demanded is less responsive to the change in price. The graph is shown below: MARKET OF RICE CROP AFTER FLOOD

The following graph shows an inelastic demand curve of rice market. As the total of producer’s gain is greater than the total number of loss, the producer receives an advantage of higher revenue from the tragedy in Thailand. Total revenue is the result of the multiplication of the quantity sold to the price of the product. Despite the advantage, the rise in price of rice has brought disadvantage to the customers. As the quantity supplied of rice is decreased, therefore they are unable to buy a larger quantity of rice and as its price goes up it increases their portion of real income spent on rice, as it is a staple food. Thus, it results to the opportunity cost of decreased remaining real income that could be spent on other goods. Opportunity cost is the...
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