Chapter 2 - The Operation of a Market

Article: http://in.reuters.com/article/businessNews/idINIndia-30333520071105

This article talks about how buyers are demanding for natural rubber and the supply will not be able to sustain the high demand. The strong demand is mainly from China because of China’s booming economy. Last year China imported 1.6 million tonnes of natural rubber to make running shoes and tires. Also, global consumption of natural rubber is expected to rise. This creates a problem for the supply market because the world’s largest natural producer, Thailand, may decrease about 3 million tonnes due to expected heavy rains next year. In addition, the second largest producer, Indonesia, is expected to remain to produce about 2.8 million tonnes due to climate change and poor yield. Finally the third largest producer, Malaysia, may lose 250,000 hectares of land for plantation due to industrialization causing production rate to drop.

This article relates to supply, demand, and elasticity in chapter 2. In chapter 2, it is suggested that if a product is demand inelastic the price of the product will not affect the demand of the quantity very much. In addition, if the supply is inelastic, a change in the price will not affect much of the supply of quantity available. We can see that natural rubber is demand and supply inelastic. Even though the price of it is increasing, the demand for natural rubber is still robust. But the quantity supplied will be reduced due to weather condition, shifting the supply curve, and the price of the supply will increase. This is shown in the article, when the supply of natural rubber decreases and the price increases. We can also see in this situation the supply and demand is not at an equilibrium point because the supplies are not meeting the demands; the supply of natural rubber is lower than demand. A substitute for natural rubber is synthetic rubber, but that is even more expense as it is made from crude oil. Therefore, the margin between demand and supply will continue to widen and will cause the price to increase even more in the future.

I think in order for the supply to meet the needs of the demands, more countries that are able to produce natural rubber should help produce more natural rubber. Substitute for natural rubber will probably not be found very soon and the price of crude oil is very unlikely to drop. So, another way to improve the supply is to have a technological change, if technology can help the tree produce rubber faster the supply of natural rubber will certainly increase. With many countries experiencing industrialization, undoubtedly the demand for natural rubber will remain high.

Chapter 1 - Introductory Concepts

Article: http://www.livemint.com/2007/09/27010330/Global-scarcity-a-boon-for-Ind.html

In this article, it talks about how India will benefit from the increase scarcity of cotton around the globe due to low planting rates in the leading producing countries. With the US decreasing in growing rate, India will expect to see an increase of sales to China and South East-Asia nations in 2008. Also, prices of cotton are excepted to rise; it is predicted to go as high as a dollar per lb. In the new crop season, India is estimated to produce 31 million bales of cotton. In addition, exports of cotton would likely increase by 20%, during the next season. With such large demand, cotton prices will remain very high. Countries include China, Indonesia, Thailand, Bangladesh and Pakistan are all going to be main buyers of the cottons.

We can see that there is "an insufficient amount or supply" of cotton produced. In economic terms, "an insufficient amount or supply" is defined as scarcity. As the amount of cotton becomes insufficient and the demand for it is increasing, it is inevitable that the price will increase as there is a limited amount of supply. The supply will become even more limited if any catastrophic events were to happen during the next crop season to disturb the growth. As a result, the production-possibilities curve will be changed and not as much cotton will be produced. Leading the resource to become even more scares. With the increasing scarcity, the profit made by the seller will increase significantly due to high demand and low supply. Without a doubt, resources becoming scares is a positive effect for the seller, but not so much for the buyers. With the increase in price, many companies have to change or make new plans due to the increase in price, as the opportunity cost of it will change.

In conclusion, I think that the shortfall of US’s cotton created a good opportunity for India's economy. With high demands and soaring prices, cotton farmers will definitely be making big bucks for this upcoming season. The downfall to high demands will surely affect consumers, as clothing materials are getting more expensive the price of clothing will also increase. I expect many investors will be investing around cotton as the price and demand will continue to rise.