Explain the Changes Regarding Price and Quantity Discussed in the Paragraph Starting “Dazzled by…” in 2011 and 2012 (so Far) Using a Different Diagram for Each Year. Also Explain Why, Using Economic Analysis, the
1. Explain the changes regarding price and quantity discussed in the paragraph starting “Dazzled by…” in 2011 and 2012 (so far) using a different diagram for each year. Also explain why, using economic analysis, the article links cotton, food, and fuel.
During 2011 many farmers swapped their food crops for cotton crops. This could be shown using a PPF (Production Possibily Frontier) diagram. A PPF diagram illustrates what an economy can produce using the given resources (in this case cotton crops and food crops). Opportunity cost also comes into play. The opportunity cost of cotton crops is not being able to supply food crops. As we can see in this diagram during 2011, farmers swapped the food crops for cotton crops, which increased the supply for cotton crops and dcreased the supply for food crops, justifying the change in the shape of the curve.
Food crop
Food crop
Before 2011
Before 2011
2011
2011
Cotton Crop
Cotton Crop
In 2011 the price of crops also peaked due to floods in India, Australia and Pakistan, economically, supply decreased due to natural and miscellaneous factors. The flooding caused a decrease in supply causing the supply curve to shift inwards. This can be seen in the diagram below.
P
P2
P1
S2
S1
D
0
Q1
Q2
P
P2
P1
S2
S1
D
0
Q1
Q2
As we can see the flood caused supply to shift inwards (S1 to S2), causing the price to increase (P1 to P2), as less crops are available at the given price level.
During 2012, price is forecast to fall due to the laws of diminishing return. This states that as a quantity of a good increases, in this case the supply of cotton crops, the marginal utility derived from that good decreases. Marginal utility is defined as the change in total satisfaction resulting from the consumption of one more unit of that good. This basically means that as the supply of cotton crops increased the quantity demanded at first followed equilibrium however as the cotton crops carried on
During 2011 many farmers swapped their food crops for cotton crops. This could be shown using a PPF (Production Possibily Frontier) diagram. A PPF diagram illustrates what an economy can produce using the given resources (in this case cotton crops and food crops). Opportunity cost also comes into play. The opportunity cost of cotton crops is not being able to supply food crops. As we can see in this diagram during 2011, farmers swapped the food crops for cotton crops, which increased the supply for cotton crops and dcreased the supply for food crops, justifying the change in the shape of the curve.
Food crop
Food crop
Before 2011
Before 2011
2011
2011
Cotton Crop
Cotton Crop
In 2011 the price of crops also peaked due to floods in India, Australia and Pakistan, economically, supply decreased due to natural and miscellaneous factors. The flooding caused a decrease in supply causing the supply curve to shift inwards. This can be seen in the diagram below.
P
P2
P1
S2
S1
D
0
Q1
Q2
P
P2
P1
S2
S1
D
0
Q1
Q2
As we can see the flood caused supply to shift inwards (S1 to S2), causing the price to increase (P1 to P2), as less crops are available at the given price level.
During 2012, price is forecast to fall due to the laws of diminishing return. This states that as a quantity of a good increases, in this case the supply of cotton crops, the marginal utility derived from that good decreases. Marginal utility is defined as the change in total satisfaction resulting from the consumption of one more unit of that good. This basically means that as the supply of cotton crops increased the quantity demanded at first followed equilibrium however as the cotton crops carried on