Changes in prices of
meat due to Eid ul Adha
Looking at the
article, http://www.khaleejtimes.com/nation/inside.asp?xfile=/data/nationgeneral/2012/October/nationgeneral_October89.xml§ion=nationgeneral , Eid Al Adha is
one of the most important festivals for Muslims in which all Muslims sacrifice
sheep, camels, goats or cows. The amount you sacrifice varies with size of the
family, income and prices of these animals. This tradition of sacrificing on
Eid Al Adha is followed in respect of Prophet Ibrahim’s obedience to Allah, as
he was willing to sacrifice his offspring when Allah commanded him to do so.
Muslims follow this practice all around the world and the demand of these animal
increases during Eid Al Adha. We can demonstrate through an economic model of
demand and supply how the pricing mechanism works and how demand and supply is
affected.
In the above shown graph, one can
see a vertical axis that represents price of a goat and the horizontal axis
represents the quantity of the goat. In a simple model the demand and supply
meet at an equilibrium point setting the price and quantity reflecting the
quantity demanded and quantity supplied. This point E1 is the equilibrium price
and quantity that is sold in a market. Additionally, in the graph above the red
line depicts the supply schedule and the blue line depicts the demand schedule.
The point above the equilibrium is the surplus of goats and the point below E1
is the shortage is goats.
Referring to the
article “Livestock prices shoot up ahead of Eid AlAdha” , we can draw
that due to seasonal/festival changes, supplier can charge a higher price being
aware that the consumers will be wiling to pay at any point; in this scenario
consumers are bound due to religious constraints. However, the Ministry of Economy in this case had
given assurance to citizens that they would monitor the prices and took radical
measures against the ‘Unscrupulous traders’, from
this it can be drawn that the prices of goods have been increasing, as the
festival gets closer.
Following is a table that shows the change in price of Somali
sheep.
Somali sheep:
Somali sheep:
Time period
|
Weight
|
Price
|
Before
|
10 kg
|
400-500 Dh
|
After two weeks
|
10 kg
|
600 Dh
|
Over a period of two weeks, the price of Somali sheep weighing 10 kg increased from between 400-500 to 600 Dirhams due to the increase in price of Somali sheep the quantity demanded has decrease but by less than 1, which shows that the demand curve is inelastic and a change in price of the lamb will cause a minute or no change in demand as consumer still require to fulfill their religious commitment. In graph 1, the will be movement along the demand curve where as the supply curve will stay the same.
Following is a table that depicts the increase
in price for Pakistan mutton:
Time Period
|
Weight
|
Price
|
Before
|
1 kg
|
26-28 Dh
|
After a month
|
1 kg
|
33-34 Dh
|
Subsequently,
if we talk about the price elasticity of demand in this case we see that with
the although the price has increased by more than 25% but the quantity demanded
has remain the same showing that demand for meat is inelastic.
Price Elasticity of Demand showing it is
inelastic as it is a necessity
Likewise,
we are aware that beef or chicken can be used as a substitute for meat since
they suit the same purpose. Lets assume that the price of meat has increased by
25% and that led to increase in demand for beef or chicken. If this takes place
it means that they both are substitute. This can be proved by showing that when
the price of one meat increases by 25% the demand for beef or chicken also
increase by 25% or more which shows that cross elasticity is equal to 1 or more
than one. When this happens the goods are treated as substitutes.
CROSS ELASTICITY OF DEMAND SHOWING MEAT AND BEEF
ARE SUBSTITUTES
In the
above diagram we have shown that when the price of meat increase from 26-28 dhs
to 33-34 dhs in the graph 1. It leads to quantity demanded being decreased from
q to q1 but this does not only affect the graph of meat at the same time it
leads to shift in the demand curve from D to D1 at the same price. This means
that with the increase in price of meat quantity demanded of meat decreases and
people shift towards beef.
Now
let’s see if meat is a normal good or inferior good. This deals with income
elasticity of demand means when a person’s income increase would the demand of
a product increase or decrease. If it increases and income elasticity of demand
is greater than 1 then it is a normal good if it does not then it is an
inferior good.
INCOME ELASTICITY OF DEMAND SHOWING MEAT IS A
NORMAL GOOD
In the
above diagram we have shown that when the income increase from I to “I1” the
demand of a product increases from Q to Q1 showing a direct relationship
between income and demand of a product.
We know that there
are 4 types of market structure starting with perfect competition in which the
demand is perfectly elastic because there are so many players in the market and
the product is homogenous where as the monopoly deals with demand being
completely inelastic as there is only one player controlling the market and
influencing the price. Meat comes in the category of perfect competition as
there are no major players in the market. The product is homogenous, there are
no barriers to entry and exit and the consumer have complete information about
the product. People usually buy meat looking at their convenience because they
feel everywhere they would get the same meet and they do not differentiate in
terms of quality or any other factor.
DEMAND CURVE IN PERFECT
COMPETITION SHOWING DEMAND CURVE IS PERFECTLY ELEASTIC
As the Ministry of Economy has
assured the citizens of watching the prices of livestock they could lower the
price of these by subsidizing the sellers of the livestock. It would lower the
price for the buyers and make it cheaper for them.
The above graph shows the fall of price this had shifted the
entire supply schedule down reducing the price. This is a useful mechanism the
government usually reduces to decrease the price of the good; the post-subsidy
would become the new supply schedule for the market.
In conclusion, the
government needs to start subsidizing for consumer protection or most
individuals will not be able to afford to buy animals to sacrifice.
Several locals intended on purchasing the animals before the festival
arrived but the prices for the animal were rather high.
Subsequently the goats and sheep on display were skinny.
Hence buyers are being overcharged as skinny animals mostly have
bone weight rather than meat.