Demand, Supply and Price Interrelation- example “quinoa”

Assuming that demand will be restricted to the above mentioned niche for the near foreseeable future, growing supply will eventually lead to a saturation of the market. If we further assume that price elasticity for the product is high while demand is stable, prices will eventually decrease and it will become unattractive for farmers to grow the product. This trend could only be reversed by efficiently marketing quinoa and growing different varieties with lower production costs and thereby introducing it to a new group of customers beyond the traditional niche. Or linear demand curves, when P is high, the price elasticity of demand is large As we move down the demand curve, P is decreasing and Q is increasing. This causes the price elasticity to monotonically increase. As we approach the horizontal axis, by definition, P is low and Q is high, so the demand is inelastic. “‘ (See graph 1) Question 2) Increasing supplies are a challenge for farmers because “Farmers will also need a broader consumer base for a dish that’s so far popular mostly with vegetarians and gluten-free aficionados”ii.

Furthermore, quinoa crops are only grown in specific areas n Bolivia and Peru, and due to the specific requirements of the plant, its harvesting cannot be extended infinitely. If supplies are extended while customers’ demand remains stable, prices will decrease in the short term. However, if supplies cannot be extended, prices will rise until such point as even rich customers are no longer prepared to pay this amount. Furthermore, “High prices are also putting pressure on the governments of these countries to improve infrastructure and financing for growers, said Jose Cutest, an economist with the World Bank, which helps the

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Bolivian government fund investments for organized farmers. “The key is making sure these subsistence farmers have access to markets,” he said. ” iii Question 3) Locals, won nave traditionally Integrated squall Into tenet Lets Wendell ten price was low, may not be able to afford it when its price rises. While local people’s demand may be assumed stable, it now competes with rich people’s demand, so overall there is a rising demand, a stable supply (until such point as marketing of quinoa leads to a broader customer range) and a rising price.

Visualizing this on a graph, the overall emend shifts to the right and so does the price, however if looking at the local customers separately, their demand shifts to the left. (See graph 3) Question 4) Jennifer Animations uses quinoa as a salad ingredient together with cucumbers, tomatoes and avocado. Locals put it in their soups, on their meat or use it as a wheat substitute for bread products. Question 5) According to the article, rice and wheat are more affordable substitutes to quinoa. Question 6) Battle Creek and Struck Corp… Are companies with high revenues and high spending capacities.

Therefore, they are able to afford the currently high price for quinoa; furthermore they are able to buy huge quantities. This has further influence on the demand curve for wealthy customers, making it shift to the right. Likewise, the demand curve for local can be expected to shift to the left, as prices increase. Question 7) So far, efforts to grow quinoa elsewhere have been fruitless. Production is still pretty much in the hands of local farmers and although there are ambitious expansion plans, sellers from outside Bolivia and Peru respectively, could not be attracted due o the lack of an appropriate infrastructure.

Question 8) In 2007, the own-price elasticity for quinoa was high because of a stable demand from loyal customers of small elite. Since then, prices have doubled and are expected to roles Owe to an Increase In mean Trot customers Walt Nell purchasing power. In order to avoid a peak situation where demand is higher than supplies available and price elasticity running towards zero, my only possibility is to invest in new varieties of crops that can be grown elsewhere and that could be sold for a lower price, thereby attracting buyers with less purchasing power.

Jesse
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