Microeconomics, section 1
Commentary: “Consumer nightmare”
Al-Ahram Weekly on-line: http://weekly.ahram.org.eg/2010/1018/ec1.htm Date published: 7 - 13 October 2012
Date of commentary: 12 December 2012
Supply is the willingness and ability of producers to produce a quantity of a good or service at a given price in a given time period. Market for all products is in equilibrium with demand equalling supply considering the current available factors of production. Figure 1 shows the market of a particular product (rice in this case) in equilibrium.
Here, demand equals supply at price P and so the market for rice is in equilibrium at P since the amount of rice that people wish to buy at that price, Q, is equal to the amount of rice that suppliers wish to sell at that price. Since equilibrium is the most suitable situation for a product in the market, a change in any of the two market forces could lead to the market of that product in a disequilibria condition. In this case, the prices of different food products are rising mainly due to a fall in their supply. Supply is a market force and a sudden fall in the supply of a product due to one of its determinants, could lead to a shift in the supply curve to the left, hence creating a disequilibria condition. This condition has various ill effects on the market price of that product, in this case food products. S1
As illustrated in Figure 2, the aggregate supply of a particular food commodity, like rice is decreasing resulting in a shift of the supply curve for rice to the left or upwards(S-S1). Since the market was in equilibrium, a shift in the supply curve should match with an equivalent shift in the demand curve. So ideally, in this case, the decrease in supply of rice should be followed by a decrease in demand too for maintaining the equilibrium state of rice. If demand does not decrease equivalently as supply, then there will be more buyers or consumers demanding less stock in supply, leading to a...
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