Another Ib Ia

852 Words4 Pages
Commentary on: Pecan market is a-crackin’
In the last few years the economic growth of China has caused the demand (and supply) of all kinds of nuts, especially pecans, to rise and producers are facing a challenge meeting the soaring demand, says “The Globe and Mail” October 18th 2010.
Demand and supply are the quantity of a good or service that consumers and producers are willing able to purchase and produce at a given price in a given time period. Equilibrium is a state of rest, self-perpetuating in the absence of outside disturbance. At this price, the quantity demanded equals quantity supplied. Price elasticity of demand (PED) is the responsiveness of demand in change of price of the product of the consumer. Price elasticity of supply
…show more content…
This sends a signal to suppliers to increase price until a new equilibrium is reached at price P1 and quantity demanded Q1.
However, instead of keeping the price at P1, the suppliers will rather shift the supply curve to the right by exporting more pecans because the Chinese demand is greater than the demand North-American demand and they can make more profit by allocating resources to China instead. Here we assume that PE is greater than North-American price of pecans.
This causes a positive shift in supply for China, from SC to SC1. Now, at price P1, Q1 pecans is demanded, but Q2 is supplied, so we have excess supply. Suppliers have to decrease the price until equilibrium is reached at price PE again and quantity supplied is 100 million pounds.
SA1
DA
SA
Price of 1 pound of pecans/ US $
Quantity of pecans/ Million pounds
American demand and North-American supply of pecans:
Q4
Q3
4,25
6,50
SA1
DA
SA
Price of 1 pound of pecans/ US $
Quantity of pecans/ Million pounds
American demand and North-American supply of pecans:
Q4
Q3
4,25
6,50
On the American market, however, there’s a negative shift in supply equal to the one in the Chinese market, from SA to SA1:

Before the shift, the market was in equilibrium at price 4,25 $ and quantity demanded and supplied Q3. Since there’s excess demand now, suppliers have to increase the price to 6,50 $ and demand decreases to Q4. If not, there will be empty groceries, queues and black markets can arise where products are
Get Access