Microeconomic Analysis

of rise in Onion prices

Onion prices rise in Aug
2013
wholesale prices shot to of Rs. 5,500 per quintal against
the normal rate of Rs. 1,500 per quintal.
Television channels and other media hyped the 100
rupees per kg fear which prompted consumers to buy
more and advance purchases.
Nashiks major markets of Pimpalgaon and Lasalgaon
where rates are threatening to breach the Rs 5,000 a
quintal mark.

Elasticity of Demand
Curve
For Onion,
Ep<1, Demand is Price Inelastic


Factors determining Elasticity of Demand of
Onion:
Availability of substitute
Time
Income level

Elasticity of Supply Curve
Factors determining Elasticity of Demand of
Onion
Time Factor
Ability to store the product

Equilibrium Price of Onion
Q
o
= D
o
(Price
onion
, Preference, Income,Inflation )
Q
o
= S
o
(Price
onion
, Rain, Govt Policies, transportation cost)

Onion is Sold at the equilibrium Price Ep when D1 intersects S1
Shift in Supply of Onion
There is a shift in supply of Onion due to
heavy rain and less production in major
producting
States: Maharastra and Karnataka

The Shift in Supply form S1 to S2 causes
The Price to rise from P1 to P2
Income and Substitution
Effects A: original bundle (with X = X
A
)
C: compensated bundle (with X = X
C
)
B: new optimal bundle (with X = X
B
)
The substitution effect is
the change in X
caused by the move
from A to C (X
A
to X
C
).
The income effect is the
change in X caused by
the move from C to B
(X
B
to X
C
).

Government Policies
The government has imposed a minimum export price
(MEP) of $650 per tonne of onions
Directed the National Agricultural Cooperative Marketing
Federation of India (NAFED) to Import onion from
Pakistan.
It also decided on measures like stock-holding limits to
check hoarding

Export Floor price on
Onion
The Union government
on 21/08/2013 re-
imposed a minimum
export price (MEP)of
$650 a tonne on onions to
check export.

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