Food Prices and Supply

           This blog article is based on the “Food Prices and Supply” article by The Associated Press from The New York Times that was posted on July 26, 2012. The full article can be seen here.

In year 2012, the summer that has a terribly hot temperature and the most horrible drought in nearly a period of 50 years had caused food prices to rise up. This frightens consumers and causing doubts and fears regarding universal food expenditure. The United States of America’s also had predicted the price for groceries such as beef, pork, chicken and milk will drives up dramatically due to the record-breaking weather in year 2013. This drought will be affecting most of the nation’s farm export. So far, the United Sates recorded the hottest year ever is in year 2012.

As we know, food is one of the most crucial aspects in our daily lives. Each and every individual requires food to carry on each day but it has become increasingly hard to obtain the usual amounts compared to what they had last time and now. This is all due to the food price changes in the economy that are giving all of the consumer’s difficulty. Scarcity is one of the issues each individual is facing. Each of us want to live a long and healthy life, want to achieve for better educations, living in the most comfortable home, wanting the latest gadgets and automobiles but what an individual can pay for is depending on their income and by the price they must forfeit. What everyone can get or a society is all limited by the resources available. As we know, the price for food is getting higher and these eventually lead us to make choices. 

We made choices and the item we gave up is called opportunity costs. Since food is so crucial for us, we cannot forgo on food so the opportunity cost will be others such as gadgets. The demand for food is a necessity and it’s inelastic. But what is a necessity and what is a luxury depend on the level of income. For some people with low earnings, food, shelter and clothing can be luxuries. So the level of income has a big impact on the income elasticity’s of demand. In countries with low incomes, the income elasticity of demand for food is high whereas in countries with high incomes, the income elasticity of demand for food is low. The price for food changes also affect the quantity demanded. According to the article, it mentions “Americans spend just 13 percent of their household budgets on food.” One of the reasons is income effect. If people faced a higher price in food but with an unchanged income, people cannot manage to pay for the amount they once had. An example is if the price of food increase, people must save more money to pay for food and they need to decrease their spending on other goods. Normally, the good whose price has increased will be one of the goods people buy less of but in this case, food is an important necessity so this left consumers no choices to choose. 

Sometimes an expected future income and credit can affects the demand for food of that period. When a person is expected future income to increase, demand for food may increase too. Food can be considered as a normal good because when income increases, the quantity demanded will be increase as well. Demand for food also can depend on the size of a population for every period of time. The larger the population, the greater of demand while the smaller the population, the lesser the demand. Preferences on food demand is also another reason that affects the quantity demanded for certain items. For instance, consumers that consume beef are more than chicken for this period, the price of beef will drives up higher than the price of chicken in the market. The more people demand for it, the higher the price rises up rapidly.

The quantity supplied of a good is all depending on the price in the market. The quantity demanded affects the price, so the more you demand for something, the more the price rises up. The higher the price of a good, the more is the quantity supplied whereas the lower the price is, the smaller is the quantity supplied. If the price of beef rises, the supply of cowhide increases too because beef and cowhide are complements in production which are goods that must be produced together and this is relates to the price of related goods produced by firms. Other than that, the number of suppliers also affects the quantity supplied. The larger the amount of firms that produce food, the greater is the supply of food. As when new firms enter food industry, the supply in food industry increase. Same goes to when firms leaves food industry, the supply in food industry decreases. In the article, it point out “The impact of the hot and dry weather on the nation’s farmers has put new pressure on Congress to move ahead on a pending five-year farm bill.” The state of nature includes factors that will influence the quantity of production. Factor like seasons and weather can always change the quantity supplied. 

In a market, there will be times we face shortage which forces the price up. When quantities demanded are more than quantities supplied, the firms will try to increase their price towards equilibrium price. When it reaches an equilibrium stage, it will reduce the shortage because it decrease the quantity demanded and it increases to quantity supplied. Besides, a high transaction costs usually occurs when you pay more than its actual price. When we are in a restaurant, we wouldn’t be only paying for the price of the food. Instead, we will be also paying the share of the costs for the services and the equipments used. Taxes also increase the prices paid by buyers and lower the prices received by sellers. So eventually, taxes decrease the quantity produced and lead to underproduction. Subsidies are payments by the governments to producers. This decrease the price paid by buyers and increase the price received by sellers. So, subsidies increase the quantity produce and lead to overproduction. Every country relies on America because they are the main exporter in the world. As mention, “Economists fear a far greater impact outside of the United States because America is a major exporter of a broad variety of agricultural products.” This will caused difficulties to everyone as the United States has already proven the price of food will definitely rise in year 2013.