Food+Prices+and+Supply+by+Jenny

TITLE OF EXTRACT: Food Prices and Supply

SOURCE: @http://topics.nytimes.com/top/reference/timestopics/subjects/f/food_prices/index.html

DATE EXTRACT WAS WRITTEN: April 7, 2011

DATE CURRENT EVENT WAS WRITTEN: Feb 20, 2012

EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE: Food prices have been fluctuating for the past few years due to rises and drops in both supply and demand. In 2008, prices rose due to a high demand from the food riots, but a drop in demand in 2009 helped ease those shortages, causing a drop in the price, but food prices started to rise again in 2010. Food prices are still expected to rise in 2011 due to a lack or loss of certain factors of production and a rise in demand. Bad weather has been affecting the FoP: land, causing less land to be useless lessening the amount of harvests. A loss of any FoP(s) will cause the PPC curve to shift inside and cause the maximum output to drop. In reality, every market is not 100% efficient so their market lies within the PPC curve. The market has just moved more towards the inside due to a loss in land. Because of a drop in supply, there is a shortage because the amount supplied is not meeting the amount demanded meaning the market is not in equilibrium. Another cause to a drop in supply is the use of crops for biofuels. This is caused by a substitution in producer goods, because countries are paying more for these crops, the ones used for biofuels, than people who need these crops for food. Therefore, these producers would rather sell the same crops to the countries using them for biofuels rather than the people who need the crops for food because then they have a higher revenue. Experts are telling these countries to scale down on this because they are saying that the combination of the loss of harvest due to loss of useful land and the extremely high demand for crops for biofuels is causing this shortage of crops. This is then causing higher prices, hunger, and political instability for the people.

VOCABULARY TERMS AND DEFINITIONS:
 * Supply: the amount of a good or service people or businesses are willing and able to provide at a given price
 * Law of Supply: As the price of a product increases, quantity supplied will also increase; as the price of a product decreases, quantity supplied will also decrease.
 * Demand: the amount of a good or service that consumers are willing and able to buy at a given price
 * Law of Demand: As price of a product increases, demand decreases; as price of a product decreases, demand increases.
 * Factors of production: land, labor, capital, management
 * PPC: production possibilities curve
 * Opportunity Cost: the 2nd best choice foregone when an economic decision is made

DIAGRAMS:

EVALUATION: The government can issue a subsidy for food producers who promise to sell their products to people for food. A subsidy would cause a higher supply shifting the supply curve to the right, meeting equilibrium. But a subsidy has an opportunity cost because there are other places the government can choose to use this money. It can also set a price ceiling for food prices so the prices can't rise too high causing hunger and political instability, but that would cause an intense shortage because producers wouldn't want to produce these crops anymore. A subsidy with a price ceiling may be used. Governments may also want to set a policy, like the one child policy to lessen the demand of food, because less people would mean less people to feed.