Venezuela food demand and supply

The Crisis in Venezuela

The paper focuses on Venezuela’s food crisis, a country whose economy has been plagued by inflation in recent months. The nation is in the grip of a global political and economic meltdown, leaving Venezuelans starving and in search of food (Gillespie, 2016).

Inflation Rates and Access to Food

The nation had the highest inflation rates in the world in August 2016, and it was estimated that the inflation rate would reach 2200 percent by the end of 2017 if the situation remained unchanged. Venezuelans’ cheapest source of food is essentially government-owned markets that market foodstuffs at discounted rates (Khushbu Shah, 2016). However, these stores implement strict rules and the customers can only buy food on specific days of the week. The situation prompts the Venezuelans to purchase food from privately owned stores, which have, in turn, hiked the food prices.

Market Dynamics and Rising Prices

Fundamentally, the stores are exploiting the existing market situation to elevate the prices. In a situation where quantity demanded exceeds the quantity supplied, vendors have the incentives to raise prices for the scarce products (Heakal, N.d.). In normal market situations, an increase in demand is matched by a subsequent increase in supply and hence, the equilibrium price is reached. However, when the demand for a product exceeds its supply, the equilibrium price is raised (Lin, 2011).

The Imbalance in Venezuela’s Food Market

In Venezuela, the demand for food is high while supply has remained relatively low and therefore, the price of food is likely to soar continually. In normal markets, an increase in product price causes the demand and supply curves to shift to the right (Cachon & Terwiesch, 2009). In Venezuela, however, the food demand remains relatively high despite the high prices while the supply remains low due to scarcity. This situation can be offset by increasing food supply in the market to make up for the imbalances that are worsening the economic situation in the country.

References

Cachon, G., & Terwiesch, C. (2009). Matching supply with demand (Vol. 2). Singapore: McGraw-Hill.

Gillespie, P. (2016). Venezuela food crisis deepens as shipments plummet. CNN Money. Retrieved from http://money.cnn.com/2016/08/11/news/economy/venezuela-food-shortages/

Heakal, R. (N.d.) Economics Basics: Supply and Demand. Investopedia. Retrieved from http://www.investopedia.com/university/economics/economics3.asp

Khushbu Shah, M. (2016). Venezuela’s inflation rates are now highest in the world, sending food prices through the roof. Business Insider. Retrieved from http://www.businessinsider.com/venezuelas-inflation-rates-highest-in-the-world-food-prices-sky-high-2016-8

Lin, C. (2011). Estimating Supply and Demand in the World Oil Market. The Journal of Energy and Development, 34(1,2), 1-29.