Posts tagged market equilibrium

In 2011, Thailand suffered one of its most destructive floods in history. This link will hopefully update with some accuracy to give this post some context in the future (at the time of writing, the floods are still very much underway): 2011 Thailand Floods on Wikipedia

Due to a combination of reduced supply (as many farms, factories, and transport links in the country were flooded) and an increase in demand (as people stocked up on essentials in case they would not be able to get any later on as the floods worsened), prices of many goods increased considerably.

Some news items and social media

On October 30th, this report from The Nation newspaper online emerged (click on the image to see the original article):

The day before, on the 29th October, the following tweet appeared reporting that the Commerce Minister apparently said consumers should not accept higher (“inflated”) prices for eggs:

Typically eggs, before the floods, would sell at 3 or 4 baht each, so the new price represented an approximate doubling.

On 31st October, the Commerce Ministry announced Price Controls on 9 Essential Goods – although eggs weren’t specifically included in the 9 Essentials, a representative from the ministry said “about 3.2 million eggs from Malaysia will reach Thailand on November 3. It would be sold at no more than Bt4 each”.

On the same day, 31st October, this  report emerged (click on the image to see the original article). [Note, to “sell like hot cakes” means to sell very quickly and in large numbers].

In the scenario above, why did they sell like hot cakes? Why did huge queues form? Why did the government have to ration eggs after maintaining a ‘ceiling’ (maximum) price of 3 Thai baht?

On 1st November, this tweet appeared on the topic:

Now we are introduced to the word ‘shortage’ – in Economics that has a specific meaning – what does a shortage mean?

Some graphs

Let’s for simplicity argue that the price of eggs had risen because of a severe reduction in supply (although it is possible that the demand for eggs increased as well, it seems likely that supply would have reduced by more than any increase in demand). Follow the steps on the graphs below:

So the question you should try and answer, as a student of Economics, is in the title …

Should Eggs Have Been Sold At Their Pre-Flood Prices?

• Use diagram(s), fully labelled and explained.
• Refer to the developments in the news and items social media references given above.
• To conclude, try to explain the possible advantages of sticking with pre-flood prices and the possible disadvantages (you might have to think from a mixture of social, political and economic perspectives).

Here are some suggested resources to help you for the economics- side of things:

mjmfoodie on Market Equilibrium

Reffonomics gives interactive diagrams on Shortages and Surpluses.

mjmfoodie on Price Floors and Price Ceilings

A bit more advanced, Biz/Ed on Putting Demand and Supply Together: The Market Mechanism. The interactive diagrams could be used to explore the changes.