As a result of supply not being able to keep up with growing demand, the price of pork in China has risen sharply. In response, the Chinese government is prepared to and has enacted a number of measures to alleviate the high prices. Their aim in doing so is to decrease the price until producers can increase their own supply to a sustainable level.
The high price has arisen as producers of pork have not been able to supply enough of the product in response to the growing demand. Pork, which is a staple of the Chinese diet and a normal good, is consumed in greater quantities as income increases. The growing middle class in China has seen many people leave rural areas in search of jobs in the city. Whilst the average income has risen, less labour …show more content…
As such, the price elasticity of supply (PES) is inelastic. In the short run, producers will be unable to respond to changes in price, because they will need to take the time to breed new produce before releasing it into the market. The sow supply being reduced by 25%, impacts producers’ capability to supply pork in the future, as they have to spend several generations increasing their supply of sows whilst releasing 25% less produce into the market. In comparison to supply, the price elasticity of demand (PED) is relatively elastic, because whilst pork is a staple of the Chinese diet, it has many substitutes such as poultry and beef. The following diagram illustrates why the price of pork has …show more content…
The article asserts that spot pork price had risen 24.4% for the year in some provinces, tame compared to Beijing, who has seen prices rise by 50%. To relieve the burden placed upon the consumer, the Chinese government has increased supply by importing more pork, as well as releasing excess pork from their reserves. The following diagram represents the effects of these two measures. In total, an extra 289,143 tonnes of pork will be added to the market, establishing a new equilibrium point of lower price at (P1+P2-Pe)(Q1+Q2-Qe). However, because the supply of pork has only risen by 0.5%, the price will only decrease by a slightly smaller percentage than this, due to demand being more elastic than
The high price has arisen as producers of pork have not been able to supply enough of the product in response to the growing demand. Pork, which is a staple of the Chinese diet and a normal good, is consumed in greater quantities as income increases. The growing middle class in China has seen many people leave rural areas in search of jobs in the city. Whilst the average income has risen, less labour …show more content…
As such, the price elasticity of supply (PES) is inelastic. In the short run, producers will be unable to respond to changes in price, because they will need to take the time to breed new produce before releasing it into the market. The sow supply being reduced by 25%, impacts producers’ capability to supply pork in the future, as they have to spend several generations increasing their supply of sows whilst releasing 25% less produce into the market. In comparison to supply, the price elasticity of demand (PED) is relatively elastic, because whilst pork is a staple of the Chinese diet, it has many substitutes such as poultry and beef. The following diagram illustrates why the price of pork has …show more content…
The article asserts that spot pork price had risen 24.4% for the year in some provinces, tame compared to Beijing, who has seen prices rise by 50%. To relieve the burden placed upon the consumer, the Chinese government has increased supply by importing more pork, as well as releasing excess pork from their reserves. The following diagram represents the effects of these two measures. In total, an extra 289,143 tonnes of pork will be added to the market, establishing a new equilibrium point of lower price at (P1+P2-Pe)(Q1+Q2-Qe). However, because the supply of pork has only risen by 0.5%, the price will only decrease by a slightly smaller percentage than this, due to demand being more elastic than