Article 5

The Interrelatedness of Demand and Supply for Cabbage and Kimchi in Korea.

This article, retrieved from The Wall Street Journal on the October 4 2010 mainly focuses on the demand and supply of two goods Cabbage and Kimchi in South Korea. 
(http://online.wsj.com/articl/SB20001424052748703859204575525380750733878.html)

First we talk about the demand and supply of a good.  Demand is the entire relationship between the price of the good and the quantity demanded of it when all other influences on buyers’ plans remain the same. It is illustrated by a demand curve and described by a demand schedule. It is the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. According to the law of demand, an inverse relationship exists between the price of a good and the quantity demanded of that good. As the price of a good goes up, buyers demand less of that good.

 The next most important aspect of this article is supply. Supply is the entire relationship between the price of a good and the quantity supplied of it when all other influences on the producers’ planned sales remain the same. It is described by a supply schedule and illustrated by a supply curve. The buyers' demand for goods is not the only aspect influencing market prices and quantities. The sellers' supply of merchandise also plays a role in formulating market prices and quantities. It is the entire sum of a good or service obtainable for purchase. As stated in the law of supply, a direct relationship exists among the price of a good and the quantity supplied of that good. As the cost of good raises, sellers are eager to supply more of that good.
 
Napa cabbages grow well during cooler weather and dry conditions and can provide a year-round fresh green in mild climates. But, due to the usually long stretch of rain the harvest of napa cabbage has drastically reduced harvests.

The state of nature, in this case the weather is an important factor of production that affects supply. Good weather can increase the supply of many agricultural products and bad weather can decrease their supply. Due to the long heavy rain the napa cabbage which doesn’t respond well to such climates has ceased to keep up with its supply for the demand it possesses. 

In Fig. 1, the demand for napa cabbage is D and the supply of cabbage is S1. Equilibrium is a situation in which opposing forces balance each other. Equilibrium in a market occurs when the price balances buying plans and selling plans. The equilibrium price at which the quantity demanded equals the quantity supplied. In figure 1 the curves intersect at an equilibrium quantity of 1000 kilograms per day and an equilibrium price of 4000 won. The equilibrium quantity is the quantity bought and sold at the equilibrium price.

As a result of heavy rains, the supply of napa cabbage has decreased; the leftward shift of the supply curve from S1 to S2 shows a change in supply which is the decline in the supply of cabbages.

As you can see there has been a very significant rise in the price and quantity supplied of napa cabbages during this period of time.  With the demand remaining constant, the equilibrium price rises to 11,500 won and the equilibrium quantity decreases to 500 kilograms per day. And with a decrease in supply and no change in demand, the price rises and the quantity decreases. 

Kimchi is Korea’s national dish made out of this napa cabbage. Since a higher napa cabbage price has hit Korean restaurants, they are now considering charging higher prices for their dish kimchi.  

As you can see the demand and supply of kimchi in Figure 2, which shows the demand curve D and the supply curve S1, there is a leftward shift of the supply curve from S1 to S2, this shows the decline in da quantity supplied of kimchi. These curves establish an equilibrium price of 2500 won per plate and an equilibrium quantity of 5000 plates per day. 

Napa cabbage Is a factor of production used to make kimchi. Napa cabbage is the main ingredient used to make this dish kimchi and considering the shortage of napa cabbage there would be definite rise in da price of kimchi due to the lack of its scarcity of its main factor of production.  Furthermore, due to the  rise in the price of napa cabbage, the supply of kimchi reduces, this is  illustrated by a leftward shift of the supply curve to S2. Taking all this into consideration, the equilibrium price of kimchi rises from 2500 won per plate to 4000 won per plate and the equilibrium quantity decreases to 3000 plates per day. 

As stated by the economic theory, when the supply of a good or service decreases, the price of the good or service increase, while the amount supplied falls. Given that the cabbage producers are not very capable of producing fair number of the cabbages, not a lot of cabbages will be supplied, at least throughout the similar harvesting periods. Consequently, the quantity demanded of cabbages will decrease, because the Law of Demand states that "as the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus," vice versa. Thus a kimchi crisis possibly will develop, due to the shortage of cabbages supplied that would lead to a massive price increase, which then would lead to fewer purchases.

When suitable weather conditions arrive, the amount of  napa cabbage supplied will return to its usual state and the supply curve in Figure 1 will go back to S1. Napa cabbage prices will return to its original level of 4000 won per 2.5-kilogram head. 

After the price of napa cabbage returns to its usual level, the supply of kimchi will also return to its original level and the supply curve in figure 2 will return to S1. The amount charged for kimchi will go back to its pervious and stable level of 2500 won per plate.