Economics Text adapted from The World Food Problem Leathers and Foster, 2009 ttp://...

Economics

Text adapted from

The World Food Problem

Leathers and Foster, 2009

ttp://www.amazon.com/World-Food-Problem-Toward-Undernutrition/dp/1588266389

Supply and Demand

• Supply curve– If a product sells at a

low price, producers make little of it

– As the price rises, producers are willing to make more of the product

– The supply curve thus slopes upward

http://z.about.com/f/wiki/e/en/thumb/f/f7/Simple_supply_and_demand.png/320px-Simple_supply_and_demand.png

Supply and Demand

• Demand curve– When the price of a

product is high, consumers don’t buy much of it

– When the price of a product drops, consumers are willing to buy more

– Thus the demand curve slopes downward


Supply and Demand

• Price reaches an equilibrium at the intersection of the supply curve and the demand curve.

• If price is higher than this point:– Producers will want to produce

more

– Customers will want to pay less

– Thus price drops back to equilibrium


Supply and Demand

• Consumers are pursuing their own best interest

• Producers are pursuing their own best interest

• “Invisible Hand” matches supply with demand– Adam Smith


Supply and Demand

• Works for– Individual consumers

and producers

– Aggregate of all consumers and all producers

• Aggregate Supply

• Aggregate Demand


Shift in Demand Curve

• Demand curve may shift to the left– Not willing to pay as much– Thus price drops– Due to drop in income

• Demand curve may shift to the right– willing to pay more for

product– Due to:

• Increased population• Increased income• Changes in taste

Demand curve shift to the left

Shift in Supply Curve

• If it becomes easier to produce a product, supply curve will shift to right– More farmland– More children for labor– Fertilizer available– Water available– Technology available

• Price drops

Engel’s Law

• The proportion of household budget spent on food decreases as income increases– Wealthy spend less %

of their wealth on food

http://www.core77.com/blog/images/pd_grocery_070629_ms.jpg

Bennett’s Law

• The ratio of starchy foods in the diet falls as income rises

• Poor eat more starchy foods– Grains– Root crops

• Wealthy eat more meat, fruit, vegetables

http://farm1.static.flickr.com/32/59614420_6ae1eef13e.jpg?v=0

Income Elasticity of Demand

• How much increase in demand for food is there with a 1% increase in income?– Elasticity =1 if is 1%

increase in demand

– Elasticity lower if is lower than 1% increase in demand

– Ex: East Java income elasticity for food = 0.58

East Java market

http://farm2.static.flickr.com/1031/1333375656_ea12b962ed.jpg?v=0

Income Elasticity of Demand

• Depends on income• Brazil study

– Low income • elasticity for rice = 2

– High income • elasticity for rice = 0.2

• Low income people bought 2% more rice with 1% more income

• High income people bought nearly same amount of rice regardless of income

http://simplicityfirst.files.wordpress.com/2008/01/rice.jpg

Price Elasticity of Demand

• Price elasticity– Change in consumption with a

1% change in the price

• As price increases, consumption decreases

• Thus price elasticity for a product is usually negative

• Ex: Indonesia– Rice: -.63– Livestock: -1.73

• Price elasticity less magnitude at high incomes: – don’t care if price rises

Costa Rica Livestock

Price Elasticity of Supply

• The change in supply in response to a 1% change of price

• Less response to food price in developing world– Farmers less involved in

market economy

– Lower inputs, therefore adjustments easier

– More risk adverse

Honduras Farmer

http://farm1.static.flickr.com/26/52737192_a3bb7f84c6.jpg?v=0

Food Security

• Food security:– “Access by all people

at all times to enough food for an active, healthy life”

• Lack of food security is caused by lack of purchasing power

Food Security Equation

• Amount of food need is less than or equal to money available to purchase food

• If household produces more food, will need to buy less

http://z.about.com/d/goafrica/1/0/H/2/tizet.jpg

Cooking tizet (corn mush) in Ghana

Food Security

• Depends on– Number in household

– Ages

– Sex

– Working status

– Health status

– Pregnancy

– Lactation

http://farm2.static.flickr.com/1123/1408758831_a9e5ab9b14.jpg?v=0

Household Food Production

• Depends on– Amount of land

– Education of farmer

– Technology available

– Capital available

– Input prices

– Subsidies

– TaxesIndia farmers

http://www1.fao.org/media_thumbs/Photos/1997/Feb1997/Thumbs_384/19480.jpg

Price of Food

• Depends on – Quantity produced

– Population demand

– Income demand

– Taste preference demand

– Government • Price controls

• Tariffs

• Subsidies

• Taxes

Ethiopia market http://www.scienceinafrica.co.za/pics/07_2003/ethiopia.jpg

Economics Text adapted from The World Food Problem Leathers and Foster, 2009 ttp://...

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Transcript of Economics Text adapted from The World Food Problem Leathers and Foster, 2009 ttp://...