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Effects of hoarding on market prices - Essay Example
This article talks about the effects of hoarding on market prices of food items. According to the article, the price of food items has soared due to massive hoarding activities of businessmen and people in their search of increase in profits and due to poor monsoon season…
As a basic economic rule, whenever a supply of a particular item is less than the quantity demanded, the former puts inflationary pressure on the price of the goods and prices increase, if the quantity supplied could not match the quantity demanded. This can be shown through pictorial representation:
The above diagram shows how hoarding affects the equilibrium condition in the market and increases the market prices. If we explain the above diagram, we can easily see that the Indian food is at a point e, where demand and supply equal at market price p1 and at quantity Q. However, as soon as the hoarding activity, this results in supply curve being shift to s1 from initial supply curve of S. As a result of this a new equilibrium is formed at the point e1. At this point the quantity is below the initial quantity of Q at Q1. (Sloman, 2004) Similarly, due to this a shortage has been created and people with more money are ruling the market by the virtue of being able to pay higher prices. As a result the market price of food items increases high and now the food stuff is available at a higher market price of p1. As a result this hoarding decreases the supply and increases the market prices. ...