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Price Theory And Price Elasticity: Using The Article: "China Sees Shortfall In Grain Output".

884 words - 4 pages

Price Theory and Price Elasticity:Using the article:"China sees shortfall in grain output".In the article which I have chosen that appeared in the Bangkok Post on Wednesday the 5th 2003, regarding the shortfall and rise of price of Chinas grains. The article focuses on various types of grains including Rice, Wheat and Maize and the price increase they have gone through due to the governments attempt to cut down stockpiles, after a record high of 512 million tones, and also to free up farmland for more lucrative crops. Through this article you can see how one decision can affect so many various places in an economy.Grains are one of the most used food products in the world. Take rice for an example, in Asia almost every meal is accompanied by rice and due to this China will soon need to import rice so the country can survive. This has happened due to the Supply of grains lowering which has now caused the price of grains to dramatically rise. The demand of rice is elastic. But how do you figure out all of this? It's all part of elasticity and price theory.The elasticity of both demand and supply are important factors of a countries economy. Elasticity refers to the amount of responsiveness in supply or demand related to the changes of price in a certain good. The most simplistic way to see if something is elastic or inelastic is through either a Demand curve (Ed), which shows the quantity demanded, or a Supply Curve (Es), which shows the quantity supplied (For both see below). If the supply or demand is very elastic the curve would be more horizontal and if the supply or demand would be Inelastic the curve would be more vertical. For the extremes a perfectly elastic curve would be horizontal and a perfectly inelastic curve would be vertical.An example of the Elasticity of Demand:This refers to the degree of responsiveness in demand with the change of price.If a Pencil cost $0.50 and the price was raised to $0.75 and through this small change of price the demand decreased by a lot it would mean that the demand for pencils is very elastic respect to the price. (See graph below)To calculate the Elasticity of demand and supply you use a variety of formulae:Even though you can see if something is elastic or inelastic just by looking at the steepness or flatness of a curve, it is not very accurate. Therefore you use different formulas to work out the exact amount of elasticity of something.To work out...

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