Question

The Indian government's recent ban on the export of lentils, to stabilize rising prices there, has led to shortages in New York and a steep increase -- depending on the type, sometimes double, or even triple -- in the price of lentils, which are a basic part of the Indian diet, a bulwark of its menus and a fixture in its kitchens. Indian lentils are still available… but prices have jumped. Some of the local Indian restaurants… are turning to lentils from other places, including Australia, Pakistan and some South American and African countries. But increased demand has driven up those prices, too… India, the world's largest exporter of lentils, imposed the restrictions in late June because an especially bad crop resulting from extreme drought stoked fears of a shortage and sent domestic prices climbing.

Question: How can we use the supply-and-demand model to explain this situation? There are three markets to consider: the market for Indian lentils in India, the market for Indian lentils in Queens, NY and the market for lentils from other countries in Queens, NY.

Answer 1