The price of vegetables went up because of the typhoon. What economic theories/concepts can i use?

Question

the price of vegetables went up because of the typhoon. What economic theories/concepts can i use?
can i use supply, demand, scarce resources? is it a giffen good? can i also include the income and substitution effect?

Answer 1

My suggested answer is as follows:

When a typhoon takes place, the supply of vegetables available in the market decreases as compared to the normal level, and assuming that the demand for vegetables remains unchanged, then the price of vegetables should be expected to rise. Diagrammatically, this is represented as follows:
- Starting from an original state of equilibrium (intersection) between the demand curve and the supply curve, let the supply curve entirely move to the left (upward) indicating a decrease in supply.
- Given that the demand curve will remain as it is, this will result in both a rise in price (on the Y-axis) and a fall in quantity (on the X-axis).
- Thus, the new equilibrium point will lie above the original point of equilibrium and to the left of it.

Thus, the major economic theories/concepts that apply to such a situation are the rules of demand and supply (or the rules of the price mechanism). Moreover, you should notice the following two critical points:
1-It is the supply of "all" vegetables that had dropped, and not only the supply of one specific type of vegetable.
2-Vegetables in general (or collectively) are considered a normal good. They are neither inferior goods nor giffen goods (or at least to the majority of people).

Thus, we can say that when the price of vegetables (in general) rises, and because vegetable (in general) are normal goods, then it can be expected (using indifference analysis) that the income effect will re-enforce the substition effect (ie: rise in prices of vegetables --> implicit fall in people's incomes after they buy the quantity of vegetables they are used to buy ---> thus people will have a motive to substitute away from the good that is becoming relatively more expensive in comparison to the other goods in the normal daily basket of goods and services for consumption). However, you should note that the substition effect here will be relatively mild (weak) because people can substitute away from tomato or beans or any other vegetable, but they often cannot substitute away from vegetables as a whole because there are not many substitutes for vegetables as a whole or for any "category" of goods as a whole.

Recall also that in such a case the price elasticity of demand will be relatively low because PED for vegetables in general (as a collective category) is by definition lower than PED for a specific type of vegetables (e.g.: tomoatoes) as there are less substitutes available in the first case than in the second.

I hope this answer will help you. You can contact me via email or IM for any other details and I am ready to help.

Answer 2

The KEY to handling a problem like this is to realize that prices are market driven and determined by supply and demand.

So you'd use the concept of supply and demand. FYI, I've found that most students struggle with knowing whether it's the demand side or the supply side that's being effected.

The KEY to figuring that part out is to make a list of what things influence demand and what things influence supply. By looking at this list, you'll be able to see which one(s) apply.

Answer 3

S&D - supply went down, thus price went up because demand did not also decline. Relative to before the typhoon, now there is more demand.
income effect b/c people's income relative to purchase price and their ability to purchase goods declined
not really substitution b/c u can't substitute vegetables

Answer 4

Sounds like supply decreased while demand remained the same.

Also, it is definitely not a Giffen good.

Answer 5

Supply and demand make sense. Especially since some farmers must have lost crops and now everyone wants to buy the ones left.

Answer 6

You can use all the above effects. Offcourse you will have to fathom the impact of the Typhoon - Both economically and personally to the people.

Answer 7

Looks like classic supply and demand issues to me.

Answer 8

i dont know-sorry