Eco Commentary
Analysis
Demand is the willingness and ability of a consumer to buy a product at each and every price in a period of time, shown on a graph as a straight line. Supply is the willingness and ability to provide goods at each and every price in a period of time, also shown on a graph as a straight line. Market equilibrium quantity is the quantity at which demand and supply are equal, and market equilibrium price is the price at which demand and supply are equal. Price elasticity of demand and supply are measures of the responsiveness of these market forces to changes in prices, and are given by the relative slope of the curve.
The graph below shows the increase in demand for pepper from 1991 to 2011, in two decades
[pic 1]
This graph, although without numerical values, represents the increase in demand by 60% to 430,000 tonnes during the period 1991-2011. This average value is due to Chinese demand for pepper increasing by nearly 200 percent, while demand from emerging markets in Southeast Asia increased nearly fourfold. In addition to that, there was a 15% increase in demand in European markets, and a 45% rise in consumption in American markets.
The graph below shows the fall in supply of Vietnamese pepper:
[pic 2]
This graph, again without numerical values, shows the fall in supply of pepper, mainly due to production problems in Vietnam, which have driven up the price of pepper. As a result, there is increased pressure on other exporter countries such as India, Indonesia and Sri Lanka. Even with high production from smaller suppliers, the continuous demand and the fall in Vietnamese supply is likely to keep prices high.
Evaluation
A normal good is defined as a good for which demand increases with a rise in disposable income. Thus, while this may not directly affect the demand of pepper, it gives consumers greater ability to purchase pepper should they desire it. The most important factor that potentially cause the demand of pepper to rise is consumers’ tastes and preferences. This is also mentioned in the article, when it said that consumers prefer seasoning on their meat dishes. The demand for pepper could also increase given the price of substitute seasoning products rises, for example salt, oregano or chili powder. In a sense, pepper (seasoning) and meat products can be considered as compliments, and so if the price of meat dishes falls, demand for pepper may very well rise. Last but not the least, demographic changes result in more potential buyers, which potentially results in increased demand.
In short, there are a multitude of factors affecting the price of pepper, each depending on the economic conditions of the market. For one, the producer will take into account costs, both fixed and variable, as well as a small amount of added value. It will also largely depend on the amount of competition in the pepper market. Supposing there are many firms supplying pepper, the price is likely to be competitive and low, but it will be high if there is just a handful of suppliers. Of course it goes without saying that the first and foremost determinant of price are the market forces of demand and supply. Another factor that might cause price to be high is the government’s imposition of a tax. When a tax is introduced, raising the price is something producers do to pass the cost on to consumers, but consumers equally pass the cost back on to produce by reducing demand.