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Supply, Demand, and Kimchi

Oct 5, 2010 • Demand, Supply, and Markets, Developing Economies, International Trade and Finance • 152 Views    No Comments

The kimchi mini-crisis is a perfect tale of supply and demand. Kimchi, “a fiery cabbage-based staple of Korea,” is typically made from “seasoned, fermented napa cabbage”.

Farmers supply the napa cabbage for kimchi and demand comes from restaurants and consumers. Excessive rainfall has devastated napa cabbage harvests. Available for free at restaurants, sort of like salt and sugar, kimchi is a South Korean staple.

With supply plummeting and demand at a consistent high, you can imagine where price has gone. Moving from 2500 won a month ago, to 4,000 won 2 weeks ago, to 11,500 won ($10.09 USD) now, the price of one 5.5 pound head of napa cabbage has more than tripled during the past month. At 3.6%, the South Korean inflation rate has risen to a 17 month high.

The Economic Lesson

An economist would ask how to affect the supply and demand curves. On the supply side, tariffs on foreign napa cabbage have been suspended and the government is buying extra napa cabbage from China. As an upward sloping curve, supply should shift to the right as imports increase. Demand appears much harder to affect since kimchi is a staple. The South Korean president has said he will use a different kind of cabbage in his kimchi but few seem to be following his lead.

If supply shifts to the right and the downward sloping demand curve shifts to the left, then equilibrium price would start moving back to 2,500 won.

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