Chinese+government+intervenes+to+curb+pork+price+rises+by+Woo+Chang

//**REMEMBER: DO NOT SUMMARIZE THE ARTICLE!!!**//

=TITLE OF EXTRACT: Chinese government intervenes to curb pork price rises=

=SOURCE: http://www.bbc.co.uk/news/business-14181125=

=DATE EXTRACT WAS WRITTEN: July 18, 2011=

=DATE CURRENT EVENT WAS WRITTEN: March 6, 2012=

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= According to the article, there are several factors that have affected decline in supply of pork and they include an outbreak of disease two years ago which led to cull of livestock and delays in production, and higher costs of factors of production. The costs of factors of production increased because the price of feed rose and cost of labor, one of the four factors of production also rose. As the number of pigs dropped and the cost of factors of production increased, there is a considerable decrease in the supply of porks. The decrease in supply makes the entire supply curve shift left and it decreased the quantity supplied/demanded and raises the price of pork. On the other hand, the demand for pork increased because increasing number of Chinese citizens were becoming richer. More rich Chinese people indicates that more Chinese people earn more income and more number of people would buy porks; increase in these two non-price determinants of demand, income and number of consumers increased the demand, making the entire demand curve shift right. As the demand curve shifts right, the quantity supplied/demanded increased but the price of pork rose even higher. Although there was great rise in price, the Chinese people kept buying the pork because pork, the country's most widely consumed meat product, has price inelastic demand. Consequently, the Chinese people are suffering from the high price of pork. However, as supply decreased and demand increased, the revenue of the pork producers increased because the price of pork, which has price inelastic demand, has risen considerably. Since the price of pork has reached so high and it is a major factor of inflation, the government decided to give subsidy to the pork producers to increase the supply and to ultimately lower the price of pork.

=VOCABULARY TERMS AND DEFINITIONS:=
 * Supply: the amount of a good or service that the producers are willing and able to produce.
 * Demand: the amount of a good or service that the consumers are willing and able to purchase.
 * Factors of Production: inputs or resources that go into the production of goods or services and they include land, labor, capital, and entrepreneurship.
 * Subsidy: amount of money paid by the government to a firm, per unit of output
 * Revenue: total income that producer earns and is calculated by price X quantity.
 * Price Inelastic Demand: a change in the price of the product leads to a proportionally smaller change in the quantity demanded of it.
 * Opportunity Cost: the next best alternative foregone when an economic decision is made.

=DIAGRAMS:= As supply decreases, the entire supply curve shifts left and as demand increases, the entire demand curve shifts right. After the changes in S&D, the price of pork has reached so high.
 * Supply and Demand Curve for Pork Market**

Before there were changes in the supply and the demand, the revenue of the pork producer was the purple revenue box(Q1 X P1) After the changes in S&D, the revenue of the pork producer changed to the orange revenue box (Q3 X P3) The pork producer gain more revenue.
 * Supply and Demand Curve of Pork Market to show the change in revenue of pork producer**

After the government gave subsidy to pork producers, the supply curve shifted right. As a result, the price went down and quantity supplied/demanded went up. The orange box shows the total subsidy paid by the government. The blue box represents the decrease in the consumers' expenditure after the subsidy and the red box represents the increase in the consumer's expenditure after the subsidy.
 * Su****pply and Demand Curve of Pork Market after Subsidy**

=EVALUATION:= The government's choice to give subsidy to the pork producers was very appropriate because it brought about win-win situation for both the producers and the consumers. In the consumers' perspective, the price of pork dropped as the supply curve shifted right (S1 -> S sub) and this was a good news for the consumers because pork is one of the essential goods. Also, there is overall decrease in the consumers' expenditure after the subsidy because the blue box (decrease in the consumers' expenditure after the subsidy) is bigger than the red box (increase in the consumers' expenditure after the subsidy) on the figure 3. Therefore, the subsidy benefits the consumers. In the producer's perspective, it is beneficial because the they gain extra money from the government and the total amount of money paid by the government is represented by the orange box in the figure 3. In the perspective of government, the subsidy was also successful. The main goal of giving subsidy was to lower the soaring price of pork which is one of the essential good for Chinese citizens and as the supply curve shifted right, the subsidy resulted in lowering the price. Since the high price of pork was one of the main factors of inflation, the decrease in price would help curbing inflation as well. Also another goal of giving subsidy was to increase the supply of products because demand is gradually increasing and this goal was met when the quantity supplied increased after the subsidy. Another role that subsidy can play is enabling producers to compete with overseas trade and as the subsidy lowered the price of pork, it allowed the producers to maintain competitive price. The decision to give subsidy to the pork producers was excellent. However, there are still opportunity costs. The money used to subsidize the pork producers could be used to establish better infrastructure in the society, better health care, or better education. Yet, the subsidy to pork producers was not only successful but also necessary and I think the Chinese government had made a great decision on this issue.