Professional Documents
Culture Documents
• Works for
– Individual consumers
and producers
– Aggregate of all
consumers and all
producers
• Aggregate Supply
• Aggregate Demand
Shift in Demand Curve
• Demand curve may shift to the
left
– Not willing to pay as much
– Thus price drops
– Due to drop in income
• The proportion of
household budget
spent on food
decreases as income
increases
– Wealthy spend less %
of their wealth on food
Bennett’s Law
• The ratio of starchy
foods in the diet falls
as income rises
• Poor eat more
starchy foods
– Grains
– Root crops
• Wealthy eat more
meat, fruit,
vegetables
Income Elasticity of Demand
• How much increase in
demand for food is there
with a 1% increase in
income?
– Elasticity =1 if is 1%
increase in demand
– Elasticity lower if is lower
than 1% increase in demand
– Ex: East Java income
elasticity for food = 0.58
East Java market
Income Elasticity of Demand
• Depends on income
• Brazil study
– Low income
• elasticity for rice = 2
– High income
• elasticity for rice = 0.2
• Low income people bought
2% more rice with 1%
more income
• High income people bought
nearly same amount of rice
regardless of income
Price Elasticity of Demand
• Price elasticity
– Change in consumption with a
1% change in the price
• As price increases,
consumption decreases
• Thus price elasticity for a
product is usually negative
• Ex: Indonesia
– Rice: -.63
– Livestock: -1.73
Costa Rica Livestock • Price elasticity less magnitude
at high incomes:
– don’t care if price rises
Price Elasticity of Supply
• The change in supply in
response to a 1% change
of price
• Less response to food
price in developing world
– Farmers less involved in
market economy
– Lower inputs, therefore
adjustments easier
– More risk adverse
Ecuador Farmer
Food Security
• Food security:
– “Access by all people
at all times to enough
food for an active,
healthy life”
• Lack of food security
is caused by lack of
purchasing power
Food Security Equation