ECONOMIC ANALYSIS FOR BUSINESS DECISION

Assignment 1

SECTION B

GROUP 9

By – Akansha Jha, Diksha Singh, Viswanadh Bitra.

ONION PRICES : India shredding tears over onion prices.

QUES 1. What factors affected supply of onions during the period of December 2010 to January
2011?
ANS 1. 1. During the year 2010 India was shedding over the onion prices as there was the sharp
rise in the price of onion.
2. The consumers were blaming the government for the sharp arise in the onion price and wanted
the government to release the onion price from the stock the opposition parties also blamed the
government for the wrong economic policies.
3. Secondly, the traders also had their hand in the spike price of onion and some other people
opined that it was due to the natural causes that there was increase in the onion price and some
other believed that it was due to the artificially created shortage.
Ques 2. What factors had affected the demand for onions? Which of these are long-run or
structural in nature and which are short-run?
Ans2. Onion is one of the most purchased products in the Indian market both by the rich and the
poor. A sharp rise in the price of this product may affect the living standards of many Indians,
especially those who are unable to afford the soaring prices. According to Dawn (2012), at first,
the government allowed the forces of demand and supply to work out and help bring down the
cost of the onion prices. However, the product became increasingly scarce and the price
continued to increase with the increasing demand.
The government, fearing possible political repercussions due to the soaring onion prices, was
forced to come up with interventions to help address the problem. In this policy paper, the
researcher seeks to analyse the forces that created sharp increase in the onion prices in India
during this period with the view of offering the government advice on how to deal with a similar
situation in future.
Short term measures
1. The current situation in the onion market makes it necessary for the government to take
immediate measures to help deal with this problem in the most effective way possible.
 2. The government should find external sources for onions, especially in neighbouring
countries such as Bangladesh, Pakistan, and Nepal where prices are likely to be lower
than that from China.
3. After securing steady onion supply from the external markets, the government should
come up with fixed prices for the onions in the local market. The set price should be
affordably to all Indians irrespective of their social status.

To further increase the local supply of onions, the government should come up with new policies
that makes exportation of onions very expensive. It can do this by directly imposing higher tax
on those exporting this product. The local market will be more lucrative to them hence most of
the products will be sold in the local market. The main advantage of this strategy is that it will
increase the supply of this product locally. The suppliers who were hoarding their products will
also be forced to release their products into the market because their goal of selling their
products are existing prices will be eliminated.
The outcome of this strategy is that it will help eliminate the current crisis of scarcity and high
prices of onion in the Indian market. However, the main disadvantage of this strategy is that it
will force the government to spend more, especially when traders have to be compensated for
their loss because of the set maximum prices for the product. The tax burden will have to be
pushed to the citizens.
Long term measures
1. When implementing the above short-term measures, the Indian government should be
ready to implement concrete measures that will address the stability of onion prices
within the local market.
2. Onion is an agricultural product that can last as long as six months if it is stored properly
(Anand 2016).
3. The current problem of sharp decline in supply is primarily caused by lack of proper
storage mechanisms among the producers.

The government, through the relevant ministries, should work closely with farmers and empower
them towards mechanisation of their production methods. These farmers should not rely on
rainfall to produce their products.
They should use irrigation. The farmers should also refrigerate their products to prolong their
products. The outcome of this strategy is that there will be steady supply of onions in the market.
Farmers and consumers will benefit because trade in onions will not be interrupted. However,
this strategy may have financial consequences to the government because it may be forced to
spend when supporting the farmers to merchandise their production.

QUES 5. Were speculative activities affecting demand for or supply of onions?

ANS 5. 1. The main factor which affected the demand for onion was that the price which was
increased and the onion quantity demanded fall due to decrease in the satisfaction level of the
consumers.
2. Another factor was that the income of the consumer was also affected due to the rise in price.
3. Onion prices were also determined by local factors as well as national factors. Local factors
mainly include the arrivals in a particular market and national factors include factors like the
supply from other states, the demand, the export price, export quantity etc.
4. Speculative involves trading a financial instrument involving high risk, in expectation of
significant returns.
5. The motive is to take maximum advantage from fluctuations in the market. The speculative
approach increased the price of the product which effected the demand of the price which led to
the sharp rise in the onion price which formed the economic buddle in the country.

Ques 6.Why did government intervene in the onion market when the prices registered a sharp
rise?
Ans6. Policy interventions- overcome market failure, to achieve a more equitable distribution of
income and wealth, to improve the performance of the economy.
Blamed due to the supply shortage caused by
1. Fixing minimum support prices
2. Minimum export price
3. Augment (increase) supply