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The Price of Rice

Apr 13, 2011 • Demand, Supply, and Markets, Developing Economies, Economic Debates, International Trade and Finance • 198 Views    No Comments

What would make you switch what you eat every day?

The Indonesian government is using an ad campaign to try to get people to change their daily diet. Their slogan is, “One Day No Rice.”

With per person consumption at 275 pounds of rice a year, Indonesians are huge rice eaters. McDonald’s serves a side of rice for 35 cents. A typical Indonesian meal could be rice with a side of meat and vegetables.

Now, with the price of rice having risen (although the UN said the price did not go up during March and that supply was considerable), the Indonesian government hopes to reverse the price trend by decreasing demand. Less rice, though, means more of something else. They are suggesting cassava. But I wonder whether that can work. You might want to look here to see how China is affecting the price of cassava.

The Economic Lesson

Indonesian rice policy seems to be fighting the law of demand. According to the law of demand, price and quantity demanded are inversely related. Higher price and we want less; lower price, we are willing and able to buy more.

Let’s assume that people do eat less rice. Then, demand shifts to the left and price descends. You can predict what happens next. And, the story gets even more complicated when we look at US rice subsidies.

Maybe the only true solution is to let price rise. Your opinion?

 

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