SUMMARY

According to this article the price of onions have risen due to lack of rainfall during
the monsoon season in India causing the farmers no choice.

The whole sale price has increased from 44-48Rs per kg. as a result the it has
affected the retail mainly focuses about the increasing prices of onions in India due
to the shortage of rainfall in this year's monsoon. Onions is considered one of the
most basic cooking items used in almost every household in india. This has created
a huge issue among the consumers as most of the poorer sections of the population
are not able to afford onions in such high prices. Meanwhile tn are even compelled to
pay as high as Rs 80 per kg.
Major onion producing states in India like Maharashtra and Karnataka, received very
less rainfall, as reported just 1/3rd of what it receives normally. and the prices are
expected to increase throughout the latter parts of monsoon, basically throughout the
year. Apart from weak rainfall, farmers are using some pro-market tricks, to improve
their income significant portion of their produce is purposefully held back and
released in the market in a dragged manner. As a result, consumers from most parts
of the nation.
Since the prices will probably rise by August, the farmers pre-plan their commercial
activity in order to increase their earnings. The government are focusing on this
issue, the food ministry has doubled the minimum export cost from 250$ to 500$
from July to August. the main reason for this is that onions get cheaper with rise in
minimum support price.

To conclude, due to shortage of rainfall people are forced to pay high prices of
onions, this is basically due to the shortage of supply, the retailers have no choice.

Firstly we talk about the market equilibrium and also the demand and
supply related to the market.

Market Equilibrium is a situation in which demand equals supply as there is surplus

nor there is shortage in the market, the price remain stable. (2015 web finance, Inc)
But in this the market is not in equilibrium as there is fall in the supply of onions due
to shortage of rainfall during the monsoon season. Therefore market demand is
greater than market supply causing the price to shoot up so it discourages the
consumers to buy more onions which helps the market be in equilibrium. The two
factors affecting market equilibrium are demand and supply.

Now talking about the two factors in market equilibrium that is demand and supply.
First lets talk about demand

As there is excess quantity demanded in the market the demand curve shifts to the
right, causing the producers to increase the price. Excess Quantity demanded refers
to a situation in which the quantity supplied is lower than the quantity demanded by
the consumer's (2015 Finance train). As the supply of onions supplied is less than
what the consumers demanded is the reason for the price hike.

Now talking about supply

As there is shortage of quantity supplied in the market, the supply curve shifts to the
left. Shortage of supply occurs when the producers are not able to supply enough in
range to cope up with the demand.
So to attain market equilibrium, the price of onions increase to lower the quantity
demanded.

Secondly we talk about the elasticity of demand and supply.

Elasticity of demand is how responsive the quantity demanded is to change in price.

(Pearson, R. Glenn Hubbard 2015).
As we all know, onions are a primary food source in India, therefore its more of a
necessity than a luxury. Although it has affected the consumers due to the price hike,
people still have to spend their income on onions because its a necessity and also
as we know there are no close substitutes to onions. Therefore the price elasticity of
demand will be less than the value of 1. The elasticity of demand for onions are said
to be in-elastic. I.E the demand curve is steeper.
Price elasticity of supply refers to the responsiveness between the quantity supplied
and its price. (Pearson, R. Glenn Hubbard 2015).
As mentioned in the article the supply of onions fell due to shortage of rainfall,
therefore the supply of onions to the market are said to be in-elastic as the producers
had to increase supply for the growing demand but cant because of unfavourable
weather.
Lastly we talk about the market structure for onion producers. It would basically be in
perfect competition. All the sellers would be selling the same product and prices are

the same. There is no one retailer dominating the market as he cannot influence
anything. The price is set by the interaction of demand and supply. As the retailers
sell identical products, the consumers have no much choice as the retailers sell the
same product. But based on the current market situation, the market may change as
there is shortage of onions due to lack of rainfall, it caused many retailers to close
their business and many retailers may not enter the market as the farmers cannot
supply enough onion as demanded, causing a oligopolistic situation. So the existing
retailers charge high prices from the consumers to increase their profit margin, so in
the current situation the market cannot be called a perfect market.

Illustration with diagram

Price

PRICE P1
PRICE P2

Quantity Demanded

According to the diagram, the demand curve D1 interacts with the supply
curve S1. The price at which onions are sold is P1 and the quantity
supplied is S1. At the current demand level D1, the sellers cannot sell
enough of onions demanded due to shortage of supply. So what happens
is that it causes the supply curve to shift to the left I.E from S1 to S2. This
causes the price curve P1 to shift upwards to P2, I.E increase in price. This
leads a decrease in quantity demanded from Q1 TO Q2. The decrease in
quantity supplied and the increase in quantity demanded has caused the
price to rise. There are various other reasons for the change in supply of
onions from S1 TO S2. Due to government intervention and also now the
farmers are now not able to supply onions to the retailers due to bad
weather.
So generally due to a fall in production, there was a decrease in quantity
demanded and a rise in the price of onions, which made the market in a
state of disequilibrium. Disequilibrium is a loss or lack of equilibrium or
stability of supply , demand and prices.
This was disadvantageous to the farmers and also the consumers causing
chaos in the market.

Referencing

Finance train. 2015. Finance train. [ONLINE] Available at:

http://financetrain.com/excess-demand-and-excess-supply/. [Accessed 27
October 15].
Web finance. 2015. The business dictionary. [ONLINE] Available at:
http://www.businessdictionary.com/definition/market-equilibrium.html.
[Accessed 27 October 15]
2015 web finance, Inc. 2015. Web finance. [ONLINE] Available at:
http://www.businessdictionary.com/definition/market-equilibrium.html.
[Accessed 27 October 15].
R .Glenn Hubbard, 2015. Pearsonglobal.
R .Glenn Hubbard, 2015. Pearsonglobal.