Economics Text adapted from The World Food Problem Leathers and Foster, 2009 ttp:// Toward-Undernutrition/dp/

Supply and Demand Supply curve –If a product sells at a low price, producers make little of it –As the price rises, producers are willing to make more of the product –The supply curve thus slopes upward Simple_supply_and_demand.png

Supply and Demand Demand curve –When the price of a product is high, consumers don’t buy much of it –When the price of a product drops, consumers are willing to buy more –Thus the demand curve slopes downward Simple_supply_and_demand.png

Supply and Demand Price reaches an equilibrium at the intersection of the supply curve and the demand curve. If price is higher than this point: –Producers will want to produce more –Customers will want to pay less –Thus price drops back to equilibrium Simple_supply_and_demand.png

Supply and Demand Consumers are pursuing their own best interest Producers are pursuing their own best interest “Invisible Hand” matches supply with demand –Adam Smith Simple_supply_and_demand.png

Supply and Demand Works for –Individual consumers and producers –Aggregate of all consumers and all producers Aggregate Supply Aggregate Demand Simple_supply_and_demand.png

Shift in Demand Curve Demand curve may shift to the left –Not willing to pay as much –Thus price drops –Due to drop in income Demand curve may shift to the right –willing to pay more for product –Due to: Increased population Increased income Changes in taste Demand curve shift to the left

Shift in Supply Curve If it becomes easier to produce a product, supply curve will shift to right –More farmland –More children for labor –Fertilizer available –Water available –Technology available Price drops

Engel’s Law The proportion of household budget spent on food decreases as income increases –Wealthy spend less % of their wealth on food

Bennett’s Law The ratio of starchy foods in the diet falls as income rises Poor eat more starchy foods –Grains –Root crops Wealthy eat more meat, fruit, vegetables

Income Elasticity of Demand How much increase in demand for food is there with a 1% increase in income? –Elasticity =1 if is 1% increase in demand –Elasticity lower if is lower than 1% increase in demand –Ex: East Java income elasticity for food = 0.58 East Java market

Income Elasticity of Demand Depends on income Brazil study –Low income elasticity for rice = 2 –High income elasticity for rice = 0.2 Low income people bought 2% more rice with 1% more income High income people bought nearly same amount of rice regardless of income

Price Elasticity of Demand Price elasticity –Change in consumption with a 1% change in the price As price increases, consumption decreases Thus price elasticity for a product is usually negative Ex: Indonesia –Rice: -.63 –Livestock: Price elasticity less magnitude at high incomes: –don’t care if price rises Costa Rica Livestock

Price Elasticity of Supply The change in supply in response to a 1% change of price Less response to food price in developing world –Farmers less involved in market economy –Lower inputs, therefore adjustments easier –More risk adverse Honduras Farmer

Food Security Food security: –“Access by all people at all times to enough food for an active, healthy life” Lack of food security is caused by lack of purchasing power

Food Security Equation Amount of food need is less than or equal to money available to purchase food If household produces more food, will need to buy less Cooking tizet (corn mush) in Ghana

Food Security Depends on –Number in household –Ages –Sex –Working status –Health status –Pregnancy –Lactation

Household Food Production Depends on –Amount of land –Education of farmer –Technology available –Capital available –Input prices –Subsidies –Taxes India farmers

Price of Food Depends on –Quantity produced –Population demand –Income demand –Taste preference demand –Government Price controls Tariffs Subsidies Taxes Ethiopia market