Food Economics: Demand, Supply, Elasticity & Population
Lecture 7: Demand, Supply, Elasticity
Lectures:
Lecture 7: Economic frameworks to study the world food problem — demand, supply, and elasticity.
Demand Curve
The demand curve follows the Law of Demand: as price falls, quantity demanded rises, producing a downward slope. This occurs because of:
- Diminishing marginal utility — less satisfaction from extra units;
- Heterogeneity in demand — different people have different willingness to pay.
The entire demand curve can shift based on changes in consumer incomes, tastes, or the prices of other goods.
Supply Curve
The supply curve follows the Law of Supply: as price rises, quantity supplied rises, producing an upward slope. This is explained by:
- Diminishing marginal productivity — diminishing returns on inputs like seed;
- Increasing marginal costs — it costs more to produce each additional unit;
- Heterogeneity in supply — different producers have different costs.
Price is an equilibrium outcome determined by the intersection of supply and demand. Prices are hard to fix because setting a price too low creates an undersupply (shortage), while setting it too high creates an oversupply (surplus). A better policy is to shift the supply or demand curves, for example using new technology to shift supply outward and lower the equilibrium price.
Elasticity
Elasticity measures responsiveness. Price elasticity of demand is the % change in demand divided by the % change in price.
Inelastic demand (elasticity between -1 and 0) means consumers are not very responsive to price changes (e.g., necessities; a steep curve). Elastic demand (elasticity less than -1) means consumers are very responsive (e.g., luxuries; a flat curve). On a linear demand curve, demand is highly elastic at high prices and becomes more inelastic at low prices.
Elasticity has two parts: a “slope” component (dQ/dP) and a “levels” component (Q/P). Other types include income elasticity of demand and price elasticity of supply.
In food economics, staples like rice have low price and low income elasticity. Richer households have more price-inelastic demands for food than poor households.
Engel’s Law and Bennett’s Law
Engel’s Law states that as income rises, the proportion (or share) of the household budget spent on food decreases. Bennett’s Law states that as income rises, the starchy staple ratio (proportion of calories from foods like rice and wheat) decreases, as people diversify their diet with proteins and oils.
Lecture 8: Food Prices, Malthus, and Population Dynamics
Lecture 8: Food price elasticity is usually inelastic for staples (like cereals), while luxuries and sodas have high price or income elasticity. Richer households have more price-inelastic demands for food.
Engel’s Law states that as income rises, the proportion of the budget spent on food decreases. Bennett’s Law states that as income rises, the starchy staple ratio (calories from staples like rice/wheat) decreases, and people eat more meat.
Malthus and Technological Change
Thomas Malthus argued population growth outpaces food production, viewing life as a “zero-sum” game. He was wrong, failing to predict technological innovation, contraception, and today’s “positive-sum” economy. Food supply per capita has risen since the 1960s.
Key Population Terms
- Birth rates — births per 1,000;
- Death rates — deaths per 1,000;
- Life expectancy — average age at death;
- Total fertility rate — total births per female.
The replacement rate for a stable population is 2.1.
Demographic Transition
The Demographic Transition is a model of population change:
- Stage 1: High birth rate (BR) and high death rate (DR).
- Stage 2: High BR and low DR (rapid growth).
- Stage 3: Falling BR and low DR.
- Stage 4: Low BR and low DR.
Population pyramids visualize age structure (e.g., Sudan = Stage 2, India = Stage 3, US = Stage 4). Population momentum is continued growth due to a large number of young people entering reproductive age. Dependency ratios compare dependents (under 15, over 65) to the working-age population. A “demographic dividend” occurs when the workforce grows faster than the dependent population.
Lecture 9: Poverty, PPP, and Inequality
Lecture 9: Malthus was wrong; the issue is not population versus food. However, significant poverty persists.
Extreme poverty is defined as living on less than $2.15 per day. Global poverty reduction stalled during the pandemic, with about 712 million people in extreme poverty in 2022. This poverty is heavily concentrated in regions like sub-Saharan Africa.
Comparing Incomes Across Countries
Comparing incomes across countries using simple exchange rates is misleading. For example, a $23,000 salary in Bangladesh affords a much higher standard of living than in the US because the cost of living is lower. To make accurate comparisons, economists use Purchasing Power Parity (PPP), which measures what a currency can actually buy in its own country rather than its exchange value. Data adjusted this way uses “international dollars.”
Income, Hunger, and Inequality
There is a strong correlation between income and hunger: countries with lower GNI per capita (average income) also have a higher Global Hunger Index score. Inequality within countries also matters for food security. If one person’s income rises significantly, their increased demand can drive up food prices, making food unaffordable for those with lower incomes.
Inequality is often measured by the income share of the top 10%. A more complete measure is the Gini coefficient, which scales from 0 (perfect equality) to 1 (perfect inequality). It is calculated from the Lorenz Curve (a graph of cumulative income share vs. cumulative population) by dividing the area ‘A’ (the space between the line of perfect equality and the Lorenz curve) by the total area ‘A+B’ (the entire area under the line of equality).
Two Views on Global Inequality
There are two views on global inequality. The “optimist’s” long-run view shows convergence, where poor countries’ incomes grow faster than rich ones, catching up over time. The global income distribution has shifted from a “bimodal” (poor vs. rich) state in 1975 toward a more single peak in 2015.
The “pessimist’s” short-run view, associated with Thomas Piketty, highlights that within-country inequality has increased since 1980. This is argued to be driven by unequal ownership of wealth (capital), not differences in skills.