Severe weather in various European locations has resulted in a considerable fall in veggies for retail sectors in the United Kingdom and Ireland. Farmers have felt the effects of the extreme weather that has plagued continental Europe since December 2016, with output declining. According to reports, farmers are facing up to 80% irreparable crop damage, which would undoubtedly result in grain shortages.
The average temperature is expected to drop to -2 degrees Fahrenheit over the next six weeks. With this in mind, retail businesses on vegetables are expected to make losses, and 70% of the country to expect severe shortages.
Analysis
The extreme temperature will result to farmers harvesting whatever little they have and preserve it for consumptions. The rest of the crops will mostly perish in the severe weather. As a natural disaster, cold weather is a supply determinant (Mankiw, 2012). Furthermore, the more severe the conditions are, the lesser the produce. With a minimal amount of vegetables in the market, the supply curve will shift to the left reacting to the decrease in demand. Moreover, the reduction in vegetables in the market will affect market equilibrium by shifting the equilibrium quantity down. The fall of the equilibrium quantity will result in an upward pressure which will lead to the increase of the equilibrium price.
The market size of the people consuming vegetables remains the same. Reduction in quantity supplied affect the price (it goes up) and thus decreasing thus some vegetables demanded. The high price and low demand will result in the upward shift of the equilibrium. The demand elasticity of demand of vegetables is almost inelastic. Vegetables have a price elasticity of around 0.3 which means that the rise in the price of the product will result to decrease in demand.
Another elasticity issues associated with the vegetable demand curve is the fact that there are no available substitutes and hence switching to another product is not possible (Mankiw, 2012). The lack of available substitute in the case of vegetables means that they are inelastic and thus people will have to buy the product whenever they need it.
When a product’s demand remains the same while its supply diminishes, the price of the products supplied from other regions may come with the same price (Mankiw, 2012). That is, the competitors will enjoy the market and will supply their products freely across the market at any cost. The lack of change in demand will, therefore, increase the price elasticity and decrease the quantity of vegetables produced.
Income available to spend on the escalating prices also affects its demand in the market. If the general consumer unit does not have extra money to spend on vegetables, the demand will be lower than if the consumer has cash.
Graphical Analysis
Since there will be no growth in the demand for vegetables, the demand curve will remain in the same position. However, there is a decline in the quantity supplied in the market causing a shift in the demand curve (Mankiw, 2012). Specifically, since the vegetables will be less provided, its supply curve will shift to the left.
S1
Q1
Q0
Q1
P0
P1
D
S
As shown in the graph, the increase in price and the decrease in supply shifts escalates the equilibrium price while reducing the equilibrium quantity demanded.
References
McCann, P. (2017). Extreme weather in Europe leads to a vegetable shortage. Farmer journal.ie. Retrieved 22 February 2017, from http://www.farmersjournal.ie/extreme-weather-in-europe-leads-to-salad-shortage-for-ni-firm-251823
Mankiw, N. (2012). Principles of Economics (1st ed., p. 90). Mason, OH: South-Western Cengage Learning.
