Question

ha EXERCISE 8.5 THE MARKET FOR QUINOA LINK] ons Consider again the market for quinoa. The changes shown in Figures 8.10a-c can be tch analysed as shifts in demand and supply. pric 1. Suppose there was an unexpected increase in demand for quinoa in the early 2000s ren shift in the demand curve). What would you expect to happen to the price and quant milli initially? 2. Assuming that demand continued to rise over the next few years, how do you think farmers responded? 3. Why did the price stay constant until 2007? 4. How could you account for the rapid price rise in 2008 and 2009? 5. Would you expect the price to fall eventually to its original level? or

Answer 1

1. The price and quantity are likely to increase initially

2. The farmers will respond by increasing production and supply

3. After the initial increase in demand and prices, the farmers will increase production and the trend of incresase in demand over the next few years might lead to a similar increase in production/supply leading to almost constant prices at the already inflated price levels after the early 2000s.

4. The increase can be attributed to the significant increase in imports which outstrips the growth in production and is akin to a demand shock.

5. In the long run, as new and new geographies start proeduction, the prices may stabilise at a level. However, a return to the original level will depend upon factors like demand and production costs. If the new geographies have a higher cost of production, then the price may not return to original level. However, if the new geographies can more than supply the increased demand at lower prices, then the prices may fall. Given the current trend, it does not seem readily acceptable.