Cause of price increase
The forces of demand and supply control the free market. Prices of commodities vary depending on the forces of supply and demand (Allen et al., 2012). Prices may increase if the supply is low. The demand for quinoa has been increasing steadily as people continue learning about the nutritious value of the plant, thus the current supply does not meet the demand sufficiently. On the other hand, supply was low since most farmers have been growing quinoa for subsistence purposes. The two factors combined have led to an increase in the price of quinoa. The following is a graph of how supply affects the price of a commodity.
According to this graph, the demand for the commodity increases from D1 to D2. The supply remains constant in this case. As a result, there is a shortage in supply. This leads to a price increase from P1 to P2. This was the case for quinoa. The demand increased, but the supply remained constant. This led to an increase in price.
There has been an increase in the demand for the plant, according to the article titled, “The Challenge for Quinoa Producers Goes beyond Increasing Supplies” by Rastello (2013). The challenge to the farmers is more than just increasing the supply, even though demand for the plant is on the increase because the plant is mostly demanded by people who do not eat meat. Consequently, there could be a surplus that could lead to a decrease in price in the short-run if farmers increase supply and the consumer base remains constant. Therefore, there is a need to get more people to like the plant to increase the consumer base. Below is a supply curve:
Position of the locals who may not afford the local staple on the demand curve
The locals who cannot afford the local staple do not affect the demand since they do not buy. Consequently, they cannot be part of the increasing demand. The locals can be located below the current equilibrium price on the demand curve.
Complements to quinoa in Bolivia
Jennifer Aniston’s most favorite salad ingredient is quinoa. Some foods are recognized as complements to quinoa in Bolivia. Aniston also has foods that she considers as complements to quinoa. A compliment is anything that makes a whole or brings perfection. Quinoa is a substitute for grains. It has complements in Bolivia, which include soups, meat, bread, or pizza. On the other hand, Aniston “mixes it with cucumber, tomato, and avocado” (Rastello, 2013, para 3).
Substitutes for quinoa
According to the article, quinoa is a substitute for grains, such as wheat and rice. Quinoa is said to be more nutritious, thus it is more preferable than the grains.
Effect on the demand and supply curve if Battle Creek and Starbucks Corporation enter the market for quinoa
Battle Creek and Starbucks Corporation are the largest cereal makers and coffee operators in the world. They have announced their intention to join the market for quinoa. The effect of this on-demand and supply is that the demand will increase. The two firms will be on the upper side of the demand and supply curves if they join the market. The price equilibrium will shift upwards since the increase in demand with supply remaining constant will result in a shortage of quinoa. Below is a graph of market equilibrium:
When demand increases, the price equilibrium shifts upwards.
The management of a company that imports quinoa
According to the article, the price of quinoa doubled from 2007 due to the increased demand for the product as supply remained constant. For companies importing quinoa, their costs of operation increased due to the increase in prices. The effect of this to the companies was that profitability decreased. However, it was a time when the demand was increasing, especially in countries that have rich citizens. Thus, I would import more quinoa if I were a manager in such a company. Probably, I would increase the level of imports and store the grains in the warehouse since the prices are likely to continue rising. I would then sell the grains later and make relatively higher profits.
Number of sellers in the next six years
Currently, the demand for quinoa is on the rise. Many people are starting to realize its nutritious value. The price for the product is also increasing as a result of the increasing demand. The profitability of those who sell quinoa is likely to continue increasing. The essence of selling in business is to make profits. Therefore, sellers are likely to be attracted to a business that is more lucrative and has high profits. The sellers of quinoa are likely to increase in the next six years because more people will be demanding for the product. In turn, the prices will rise and profits will increase. The level of sales will be high. Sellers will increase to take advantage of the opportunity.
Own Price Elasticity of demand
In economics, the response or the ability of the quantity of a good or service demanded to change in an event that the price changes are measured in terms of price elasticity. The change in price is the elasticity. For instance, it is expected that demand goes down when the price of a commodity increases. The change in demand is dependent on the availability of substitutes, as well as price. Elasticity is measured in percentage. It is important to note that price elasticities are usually negative, although the negative sign is usually ignored. Price elasticity is usually negative is because the price of a commodity is inversely proportional to the quantity demanded. However, exceptional commodities that are not affected by the law of demand have a positive elasticity (Allen et al., 2012). Below is a graph of demand elasticity:
Own price elasticity of demand refers to the change in the level of demand as a result of a change in price, both in percentage. The survey conducted in 2007 indicated that the own-price elasticity of demand for quinoa was high. This meant that an increase in price would lead to a decrease in demand by a large percentage. The estimate in 2007 may not be applicable today because demand for quinoa has increased significantly. Many people have realized the nutritious value of the product, thus they opt for quinoa instead of other grains such as wheat and rice. Therefore, an increase in price will not lead to a large decrease in demand. In other words, the own-price elasticity of demand for quinoa is lower than it was estimated in 2007.
List of References
Allen, WB, Weigelt, K, Doherty, N & Mansfield, E 2012, Managerial economics: theory, applications, and cases, W. W. Norton & Company, New York, NY.
Rastello, S 2013, ‘Aniston’s salad isn’t enough as quinoa farmers reap golden crop’, Bloomberg. Web.