Demand & Supply Analysis

477 WordsJan 26, 20122 Pages
Headline : Jakarta: Poor food distribution, bad weather worsen price problem Source : The Straits Times Date : Friday, 10 September 2010 Summary Newspapers reports and figures released by Indonesia’s Central Statistic Agency confirm that consumers have been forking out more for staples and other food items. The several reasons that constitute to the rising food prices are seasonal spike in consumption, extra income, lack of decent infrastructure and weather. Related Economic Concepts Demand of a product refers to quantity which people are willing and able to buy at different prices, in a specified time period, ceteris paribus. Change in Demand (for a given supply curve) – If one of the non-price determinants of demand changes, the demand curve will shift. [pic] When the demand of food increases, the demand curve will shift to the right. Both the equilibrium price and quantity will increase. Economic Analysis As mentioned in the article, during the Aidilfitri festive period, the demand of staples and other food items increases. Staples and other food items are considered as normal goods. The demand increases only when consumers’ income increases. This was evident in the article as civil servants got their bonuses which will lead to higher spending power. As a result, everyone ended spending more money on staples and food items during the festive season and thus resulted in the rise in food prices. From the economic perspective, when the demand of a good increases due to a non-price determinant, the demand curve will shift to the right (D to D1) as shown in Diagram 1 below. The equilibrium quantity will increase from Q0 to Q1 and the equilibrium price will increase from P0 to P1. Diagram 1 [pic] Conclusion To curb the rising prices of staples and other food items, Indonesia government may introduce price

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