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MBAF 504 Economics from Business Perspective: Impact Of Food Prices

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This term paper is designed to get students to look deeper into the principles of economics. Below is a list of selected papers. There are four categories of the papers and each of them is listed under their respective categories (supply and demand, international trade, elasticity and government policies, and social welfare and externalities). Please, choose one of the papers from the list for your critical review essay purpose.

Once you choose the paper, write a critical essay using the information and evidence provided in the paper. Note that you are supposed to provide a critical review of the paper you choose in connection with the concepts that you learnt in the course,.

Supply and Demand

Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food. American journal of public health,?100?(2),?216-222.

  1. Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American? Economic Review,?99?(3),? 1053-69.

International Trade

  1. Schumacher, R. (2012). Adam Smith's theory of absolute advantage and the use of doxography in the history of economics. Erasmus? Journal for Philosophy and Economics,?5?(2),? 54-80.

  2. Seretis, S. A., & Tsaliki, P. V. (2016). Absolute advantage and international trade: Evidence from four Euro-zone economies. Review? of Radical Political Economics,?48?(3),? 438-451.

  3. Kasahara, H., & Lapham, B. (2013). Productivity and the decision to import and export: Theory and evidence. Journal? of International Economics,?89?(2),? 297-316.

  4. Johnson, H. G. (2013). Optimum tariffs and retaliation. In International?Trade and Economic Growth (Collected Works of Harry Johnson)?(pp. 31-62). Routledge.

Elasticity and Government Policies

  1. Chaloupka, F. J., Straif, K., & Leon, M. E. (2011). Effectiveness of tax and price policies in tobacco control. Tobacco? Control,?20?(3),? 235-238.

  2. Zhou, N., Levine, M. D., & Price, L. (2010). Overview of current energy-efficiency policies in China. Energy? policy,?38?(11),? 6439-6452.

Social Welfare and Externalities

Mariappanadar,  S. (2012). The harm indicators of negative externality of efficiency focused organizational practices. International? Journal of Social Economics,?39?(3),? 209-220.

Answer:

Introduction

In case of microeconomics, demand and supply is a model for determining commodity prices in the market. The changes in price often affects the demand for various food. When the food has an inelastic demand in the market, changes in price does not highly affect the demand for that food whereas when it has an elastic demand, changes in price of the good highly affects the demand of the good (Kilian, 2009). Food prices therefore, affects the consumption pattern. When there is global food price change it will have a great impact on global food consumption in countries with lower income. Therefore, high change in price will have a huge impact on the  budget allocation of a market. When food prices are higher it will affect people of different economies in different way. Economic shocks will also lead to change in the purchasing behaviour of the consumers.

Critique

The following paper aims to focus on how the prices of food impacts on the consumption pattern. It had found the price elasticities for different kind of away from food along with different types on non-alcoholic beverages like juices and soft drinks. The absolute values of elasticities are calculated based on the 160 studies. It was found out that the price elasticies ranged between 0.27 to 0.81.  Due to increase in the lifestyle diseases especially in the urban areas, there is an increase in the making of diet related policies by the policymakers. The policymakers carefully designed the tax structure such that people consume less of those goods. It has been found out that food away from home has the highest price elasticities and the eggs had the most inelastic demand (Cornelsen et al., 2015). The research also suggests that when the policymakers adds tax of ten percent on the soft drinks there has been only 8% reduction in the purchase as there are hardly any substitutes for soft drinks. Researches had been taken place in order to lower the price of healthier goods by increasing subsidies and also increasing the price of unhealthy foods like soft drinks, meat by raising taxes. Raising taxes in unhealthy food will make people consume healthier foods and there will be also increase in the revenue (Dawe et al., 2015). The paper also aims to provide consumption pattern of the people of United States over the past seven decades. Mean price elasticies of different types of food consumed by the people of US were found out. The authors here mainly focused on how the price elasticities of food will affect the changes of price on primary demand. Both cross price elasticity and demand price elasticity are considered. Studies were mainly focussed on specific groups of population in order to capture all types of variance in the data of United States (Cornelsen et al., 2015). The data was taken from the year 1938 to 2007. Along with meat, milk was the most studied category for the study.

Comments on how the article relates to other work

Both the papers focuses on supply and demand. This paper is compared with the other paper that consists of demand and supply shocks in the crude oil market. The paper mainly focuses on the magnitude and timing of the oil shocks (Darmon & Drewnowski, 2015). The former paper shows that due to change in price there is a shift of demand of food in the US market. Oil shock results in rise in the oil price for which there is a high chance of recession. Cost of oil can be determined by demand and supply. Both the articles suggests that there will be change in demand and supply whenever there is a change in price. Also both the paper focuses on the economic shocks and how it changes the purchasing behaviour.

Comments on how the paper relates to the theory

The paper shows how food prices affects the consumption pattern. The price elasticity of demand on various food has been researched in this paper. The paper also shows how a recession or inflation in the market affects the purchasing power of the consumers. According to the economic theory it is known that when the price elasticity of food is, changes in price will not much affect the demand (Andreyeva, Long & Brownell, 2010). When there is a huge availability of close substitutes of a particular product, rise in price will lead to decrease in consumption which suggests it has an elastic demand. It is seen that food away from home is more responsive to change in prices compared to other items. However, the rise in price will affect the demand for food highly when there is an elastic demand. Food tax and subsidies highly effects the food purchases of the children. The author also points out that when the price of fruits vegetables or any kind of healthy food increases, the low priced calorie dense foods becomes more attractive to people and therefore the demand for those increases. Demand for food is usually inelastic in most of the cases.

Conclusion

The paper “Impact of Food Prices on Consumption” provides a research on price elasticity of demand of various food. The authors of the paper reviewed 160 studies of different food categories where price elasticities ranges from 0.27 to 0.81. The different food categories on which the absolute value of mean price elasticity are calculated for different soft drinks, non-alcoholic beverages and for the food away from home where eggs have the least price elasticity and  price elasticity is very high for the  food which is away from home. Absence of substitutes for soft drinks made its demand to be inelastic. The paper also shows that when the price elasticies of certain food is inelastic, variation in prices will not affect the demand much unlike those for products which has an elastic demand. However, the reviews have some limitations and that is they used a combined elasticity of price for both fruits and vegetables instead of estimating separate price elasticities for each of them.

References

Anand, S. S., Hawkes, C., De Souza, R. J., Mente, A., Dehghan, M., Nugent, R., ... & Kromhout, D. (2015). Food consumption and its impact on cardiovascular disease: importance of solutions focused on the globalized food system: a report from the workshop convened by the World Heart Federation. Journal of the American College of Cardiology, 66(14), 1590-1614.

Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food. American journal of public health, 100(2), 216-222.

Cornelsen, L., Green, R., Turner, R., Dangour, A. D., Shankar, B., Mazzocchi, M., & Smith, R. D. (2015). What happens to patterns of food consumption when food prices change? Evidence from a systematic review and meta?analysis of food price elasticities globally. Health economics, 24(12), 1548-1559.

Darmon, N., & Drewnowski, A. (2015). Contribution of food prices and diet cost to socioeconomic disparities in diet quality and health: a systematic review and analysis. Nutrition Reviews, 73(10), 643-660.

Dawe, D., Morales-Opazo, C., Balie, J., & Pierre, G. (2015). How much have domestic food prices increased in the new era of higher food prices?. Global Food Security, 5, 1-10.

Falbe, J., Thompson, H. R., Becker, C. M., Rojas, N., McCulloch, C. E., & Madsen, K. A. (2016). Impact of the Berkeley excise tax on sugar-sweetened beverage consumption. American journal of public health, 106(10), 1865-1871.

Hawkes, C., Smith, T. G., Jewell, J., Wardle, J., Hammond, R. A., Friel, S., ... & Kain, J. (2015). Smart food policies for obesity prevention. The Lancet, 385(9985), 2410-2421.

Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99(3), 1053-69.

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