Consider the market for onions in India during a two month period (Dec 2010 - Jan...

Consider the market for onions in India during a two month period (Dec 2010 - Jan 2011). The average price was running around Rs 30 in the first week of Dec 2010 and shot to above Rs 50 by the fourth week of December. The average price level usually hovers around Rs 15. Consider that the events were such that both the demand and the supply of onion in India were affected during the two-month period.

Supply Side -India largest producer of onions and government had been supporting aggressive export policies -Highly perishable and lack proper storage facilities (most farmers bring onions to market and unload entire stock within a month of harvest) -Crop is susceptible to disease and pests which can ruin the crop (fungal disease impacted the crop in 2010) -Crop is sensitive to weather (extended monsoon in 2010)

Demand Side -Consumers use onions daily regardless of income -Not many close substitutes and considered to be almost an essential item -Population growing -December-January is when people get married in India as well as seasonal celebrations increasing demand for onions and families stocking up in anticipation

What possible general combination(s) of changes in demand and supply would necessarily lead to an increase in the price of onions? Support your discussion by stating the average price during the two-month period.

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Expert Solution

Rahul Sunny answered 1 year ago

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