Economy Theory

Scarcity of sugar and foods.

 In this blog, readers can learn how actually Economics theory applied into the real world. You will actually find out what happened to our Economics and how these theories are linked. Have anyone of you ever wondered what will happen when a country is facing a shortage of foods? And there is unlimited demand for it. If this situation happens it means scarcity had taken place in the country for food. Scarcity it means there is unlimited wants of the demands with limited resources of supplied. In a country with a shortage of foods supplied, it will force the people to pay more or to give up something in order to get what’s really important to them with their limited resources. According to (Mishra, 2009) an article about “Why India is paying heavily for food”. In India, the citizen is facing scarcity of food because the population in India had risen approximately from 380million to 1.2 billion lately. Having this much of demand obviously the food production will not be able to cover the pace. The main causes of scarcity in India because of the uncontrollable growing of demand with limited size of land to produce food production. In order to overcome the problem, the government set a price floor for foods and ingredients by 50% increased to prevent them completely run out of food production. It must be set above the market equilibrium in order for it to run. When the price of food is this expensive the demand for it will reduce because not all people can afford it. This is when scarcity happens because the demands have to highly pay or gave up something in order to get the resources of food they want.

 

Image sources: http://images.travelpod.com/tw_slides/ta01/070/0ae/1152_12995244740-tpfil02aw-13641.jpg
India shortage of foods

Image sources: http://img90.imageshack.us/img90/1930/61435701.jpg

Malaysia Runs Out of Sugar

          Next, if we compare to another country which is Malaysia. They are also facing shortage in goods ingredient which is sugar. Back to 2010 Malaysian are facing biggest crisis of shortage in sugar. According to The Star, a check at several grocery shops has revealed that no sugar has been on sale for over a week (Dzulkifly, 2010).  In this article, there are various complaints from Kuantan, Muar, Klang and Temerloh that there is no sugar available for a week. Scarcity will involve in this case because of the shortage occurred. Price will increase rapidly due to the high demand for sugar. This will harshly affect most of the Malaysian who is running a restaurant or food production. In this situation when the supply having shortage, the demand for it will increases. Thus, the demand curve will shift rightwards and the supply has to increase the price in order for them to meet the equilibrium point. There are a few reasons about why scarce of sugar happens. It is because of high costly of production and high tax would possibly make the producer to decrease their ability to produce the goods. Generally when the producer stops producing, the price of sugar in Malaysia will increase.

Image sources: http://sbhsgovecon.files.wordpress.com/2013/02/shortage-v-surplus-d-s-graph.gif?w=468

  Shortage after Hurricane Sandy. 

          Demand is an amount of goods of products and services the customers are willing to purchase with a reasonable price. We should not be confused between change in demand curve and change in quantity demand because there is always a difference in this two. As we know in the term of economics the demand curve is always downwards sloping because as the quantity demand in demand curve moves towards the right it means more consumers will buy the products or services because there is a decrease in the prices (Refer to Diagram 1). 

Diagram 1: Increase in quantity demand from A to B

 

In this world no matter where we go we will always see a common things on the road which is cars. Each car are using large amount of petrol to move it. Does it mean some country will face a shortage of it? According to (Cavaliere, 2012) New York Daily News, no petrol for New Yorkers after a week hit by a hurricane sandy. Sandy will end up with 20 billion in property and $30 billion in business which includes petrol. The shortage of petrol in New York was dragging for many days and many petrol stations were forced to shut down. In the article there’s an employees from Shell station told the Daily News that they did not have a single drop of gas to sell. When this happened, some of the retailer will raise the price of the petrol. For example, in this article it says that the price of each gallon of gas rises from $12 to $18. From this we can see that the supplier will increase the prices to get more profit when there is shortage petrol because of the highly demanded of it and insufficient of products. The suppliers will have to do this in order for them to meet the market equilibrium.This can be illustrated through Diagram 2.

No matter how the prices changes, demand for it will still continuously increase because petrol is an inelastic goods. Elasticity demand is a type of demand that will increase or decrease according to the price of goods. For example, ice-cream is an elastic demand. When the price of ice-cream is around RM 3 the demand for it will be high in demand. However, when the same ice-cream goes up its price to RM 5, most people would not buy it. Inelastic demand is the opposite for it. Inelastic demand means people will still buy the goods no matter what the price is. For example, in this article people are still willing to purchase the petrol even thou the prices raises from $12 to $18 each gallon because they know that they need it to travel. Besides that, they will also need petrol to travel to another town after their home been sweep by the hurricane. Shortage will continue for few days after the hurricane because most of the petrol will be used to generate the electricity or water hydro pump. So basically, price of petrol in New York will continuously increase till market for petrol is stable. 

Image sources: http://0.tqn.com/d/economics/1/0/e/F/price-gouging-2.jpg

 

Normally after the sweep of hurricane, there will be no electricity supplied for the whole area. Due to this whenever there is petrol available it will be used to generate electricity. Besides that, they had spent $450 million to regain their power supply to the demand. In order for the supply of electric generator to recover their cost, they raise the price of electricity supplied to about $90 per month which risen by about 3% for three years just to cover those expenses alone (Cardwell, 2012). Electricity is also inelastic goods because no matter how much they increase the price, the demand for it will still be because everyone needs it. In this period the electricity of supply tend to fall due to limited of petrol supplied to the generator but it will increase when everything is stable. Furthermore, hurricane Sandy’s aftermath had also affected the housing and its price. Roughly $88 billion worth homes were sweep off by the hurricane in the states. According to the article by, (Brennan, 2012) before the hurricane came, the houses there were increasing in price with 11% year-over-year and pending sales up to 14.5%. This rising numbers had made the area to become a bright spot in recent real estate report. However, after the hurricane sandy sweep along the east coast the home sales expect to be drop tremendously. All the supplier of houses will be having surplus in their sales because the demand will hold or stop buying new houses. Although millions of people lost their houses but the demand for new houses will decrease due to seller have to repair their damaged property from the market and this is large enough to pull down the national sales statistics down starting from November. Interestingly, the home prices tend to increase tremendously after few month of the hurricane. This is the time when the supply of houses faces shortage because the construction of new houses can’t pace up with the growing of population. To overcome this shortage, the government should set a price floor above the market equilibrium so not all people can afford the houses. However, for the people who bought the house will have opportunities cost because they will have a house to live and can avoid buying an expensive house in the future. 

Image sources: http://www.catholicnewsagency.com/news/six-months-later-sandy-victims-plod-through-recovery/
Houses destroyed by Hurricane Sandy

Image sources: http://cdn.theatlantic.com/static/infocus/sandy110112/s_s02_blackout.jpg

Blackout of city without any electricity supplied.

Shortage of fuels after Hurricane Sandy.. Enjoy ^_^

Video sources: http://www.youtube.com/watch?v=W_yTLXqqbEA

References: 

Brennan. M, (2012) How Hurricane Sandy’s Aftermath Will Affect The Housing Market’s Recovery, 11 January [online]. Available from: http://www.forbes.com/sites/morganbrennan/2012/11/01/how-hurricane-sandy-will-affect-the-housing-markets-nascent-recovery/ [Accessed 8 June 2013].

Cardwell. D, (2012) Hurricane sandy Alters Utilities’ Calculus on Upgrades, 28 December [online]. Available from: http://www.nytimes.com/2012/12/29/business/hurricane-sandy-alters-utilities-calculus-on-upgrades.html?pagewanted=all [Accessed 8 June 2013].

Choo. Y. M, (2012) Malaysia Economic Transformation Advances Oil Palm Industry, 09 September [online]. Available from: http://www.aocs.org/Membership/FreeCover.cfm?itemnumber=18340 [Accessed 23 May 2013].

Dzulkifly. S, (2010) Malaysian Consumers and Retailers Suffer Sugar Shortage, 07 June [online]. Available from: http://news.malaysia.msn.com/regional/article.aspx?cp-documentid=4133183 [Accessed 23 May 2013].

Mishra. S, (2009) Why India is Paying Heavily For Food, [online]. Available from: http://zeenews.india.com/FoodCrisis09/story.aspx?aid=561890 [Accessed 6 June 2013].

Notablesolution4u, (2012) Gas Shortage After Hurricane Sandy. Youtube [video].  23 December. Available from: http://www.youtube.com/watch?v=W_yTLXqqbEA [Accessed 08 June 2013].