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ECO401 Economics GDB Solution Fall 2013

Containing inflation is not easy and stabilizing prices of essential food items is even more difficult. In Pakistan, effective monitoring of food prices is nowhere in sight. Repeated warnings by officials against profiteering fall on deaf ears.  When supplies are disrupted, prices move up. Food inflation peaked in FY11 to 18% against aggregate CPI inflation of 13.7% because in that year, super floods had washed away pulses, vegetables and other minor food crops and wrecked farm to market transportation. Sowings and harvests of wheat, rice, maize and sugarcane were also hit. The very next year, food inflation equaled overall inflation of 11% as supplies had improved after increase in crop harvests and improvement in logistics. In the last fiscal year too, food inflation of 7.4% was slightly higher than the general inflation of 7.1%. But in six months of the current fiscal year, increase in food prices has been higher than increase in CPI inflation as a whole, 9.9% against 8.9%. According to latest inflation report of State Bank of Pakistan (SBP), prices of 17 out of 20 food items went up in December with year-on-year increase ranging between 2% in case of sugar, to 78% in case of onions. Reports of previous five months had painted almost identical picture of prices of essential food items. According to Pakistan Bureau of Statistics (PBS), food inflation in small towns and villages rise faster than in major cities, it essentially means supplies are really scant. It also means that in the given period, cost of transportation of some food items from cities to rural areas has been higher than intra-city transportation cost. There is even huge difference in the prices of rice, wheat flour, sugar, pulses, fish, eggs and poultry meat in various parts of the country. Retail food prices also vary among various cities and even between different markets of the same city. Some food items like vegetables, fruits and pulses show erratic changes in prices also because they are perishable. Not only Pakistan, but other countries in the region like India, China, Bangladesh and Sri Lanka have lately experienced abnormal rise in prices of onions and potatoes simply because a late or faulty assessment of crop shortage made it difficult for them to compensate supply gaps with imports.

Requirement:

Being a student of Economics, carefully analyze the above case and think over the factors that cause a huge difference in the prices of food items in various parts of the country. What measures should be taken in order to control the food inflation as a whole? Discuss logically.

Important Note:

For better understanding of the case, read this article thoroughly.

Solution: 

A)) Factor

* Scarcity in which economics are unabel to supply all the goods and demand

* Natural disraster which hit food and crops

1. Cost of production

2. landed cost of imported items

3. transportation cost

4.size of population

5. size of market

6. degree of administrative control.

B)) Measures

* Government should take steps in Natural Disaster to save.

* The federal government provides several grants and loans for farmers

* Make public transport cheaper, better and accessible to all

 

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