The price of a commodity such as wheat increases when there is an increase in demand and decrease in supply. This particular case is currently being experienced in China and South Africa. Preceding the price change, changes in demand and supply has to occur. There are factors which cause this change in demand and supply.
FACTORS WHICH CAUSE CHANGES IN DEMAND AND SUPPLY
China recently experienced a drought causing the low production of wheat. Low production of wheat resulted in a low number of suppliers of wheat. The low number of suppliers caused the decrease in the supply of wheat.
China is the world’s largest consumer of wheat. This is due to China’s large population. And because of the country’s large population and the decrease in the supply of wheat due to the drought, the demand of wheat increases. Therefore China is currently focusing on the importing of wheat and the reduction of the supply of wheat. In South Africa, the supply of wheat decreased this year due to the low number of plantings of wheat. Less number of wheat was planted in the last planting season. This was because of the decrease in the price of wheat during the last planting season.
This causes the low production of wheat and results in the decrease in the supply of wheat. But due to the increase in the demand of wheat, South Africa has to import the necessary wheat. 0
Figure 1 The Effects of a Change in Supply
a) Decrease in supply
The decrease in supply of wheat causes the supply curve in figure 1 to shift leftwards from S0, the original supply curve to S1, the new supply curve. In China this shift in supply resulted from the drought which was responsible for low wheat production, resulting in low supply of wheat. And in South Africa this shift