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Economics Text extracted from The World Food Problem Leathers and Foster, 2004 Economics Text extracted from The World Food Problem Leathers and Foster, 2004

Supply and Demand • Supply curve – If a product sells at a low 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/f 7/Simple_supply_and_demand. png/320 px. Simple_supply_and_demand. png

Supply and Demand • Demand curve – When the price of a product is 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 http: //z. about. com/f/wiki/e/en/thumb/f/f 7/Simple_supply_and_demand. png/320 px. Simple_supply_and_demand. png

Supply and Demand • Price reaches an equilibrium at the intersection of the supply 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 http: //z. about. com/f/wiki/e/en/thumb/f/f 7/Simple_supply_and_demand. png/320 px. Simple_supply_and_demand. png

Supply and Demand • Consumers are pursuing their own best interest • Producers are 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 http: //z. about. com/f/wiki/e/en/thumb/f/f 7/Simple_supply_and_demand. png/320 px. Simple_supply_and_demand. png

Supply and Demand • Works for – Individual consumers and producers – Aggregate of Supply and Demand • Works for – Individual consumers and producers – Aggregate of all consumers and all producers • Aggregate Supply • Aggregate Demand http: //z. about. com/f/wiki/e/en/thumb/f/f 7/Simple_supply_and_demand. png/320 px. Simple_supply_and_demand. png

Shift in Demand Curve • Demand curve may shift to the left – Not 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 Demand curve shift to the left – willing to pay more for product – Due to: • Increased population • Increased income • Changes in taste

Shift in Supply Curve • If it becomes easier to produce a product, supply 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 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. core 77. com/blog/images/pd_grocery_070629_ms. jpg

Bennett’s Law • The ratio of starchy foods in the diet falls as income 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: //farm 1. static. flickr. com/32/59614420_6 ae 1 eef 13 e. jpg? v=0

Income Elasticity of Demand • How much increase in demand for food is there 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: //farm 2. static. flickr. com/1031/1333375656_ea 12 b 962 ed. jpg? v=0

Income Elasticity of Demand • Depends on income • Brazil study – Low income 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 http: //simplicityfirst. files. wordpress. com/2008/01/rice. jpg bought 2% more rice with 1% more income • High income people bought nearly same amount of rice regardless of income

Price Elasticity of Demand • Price elasticity – Change in consumption with a 1% 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 Costa Rica Livestock • Price elasticity less magnitude at high incomes: – don’t care if price rises

Price Elasticity of Supply • The change in supply in response to a 1% 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: //farm 1. static. flickr. com/26/52737192_a 3 bb 7 f 84 c 6. jpg? v=0

Food Security • Food security: – “Access by all people at all times to 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 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 Cooking tizet (corn mush) in Ghana http: //z. about. com/d/goafrica/1/0/H/2/tizet. jpg

Food Security • Depends on – – – – http: //farm 2. static. flickr. Food Security • Depends on – – – – http: //farm 2. static. flickr. com/1123/1408758831_a 9 e 5 ab 9 b 14. jpg? v=0 Number in household Ages Sex Working status Health status Pregnancy Lactation

Household Food Production • Depends on India farmers http: //www 1. fao. org/media_thumbs/Photos/1997/Feb 1997/Thumbs_384/19480. Household Food Production • Depends on India farmers http: //www 1. fao. org/media_thumbs/Photos/1997/Feb 1997/Thumbs_384/19480. jpg – Amount of land – Education of farmer – Technology available – Capital available – Input prices – Subsidies – Taxes

Price of Food • Depends on – – Quantity produced Population demand Income demand 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