Markets - Effective Demand Flashcards
effective demand failure and famines
if people starve because they can’t afford to buy food from well-functioning markets, this is an entitlement failure
market failure and famines
occurs when traders fail to respond to signals of effective demand or prices rise excessively due to…
- market fragmentation
- speculation or hoarding
policy implications of effective demand failure
transfer resources to those in need
- give cash transfers rather than food
policy implications of pure market failure
government must substitute for market
- must move food into affected areas
market dependence - price movements
- food markets exposes poor people to the possibility of starvation induced by sharply adverse price movements
- value of assets and incomes is crucial
- traders objective is profit maximisation rather than poor survival
market dependence - distance
- the more markets you have to go through to convert endowments into consumption, the more vulnerable
- direct producers safer than those who receive wage
market dependence - profit motive
problems of free market forces and profit motive
1) Sudan
- markets worsen position of poor by aggravating demand failure
- private merchants control distribution, supply where there is purchasing power
2) Ghana
- profit motive lead to shift in cash crops, surplus diverted to towns, changing relative prices discouraged traders, breakdown in market on which deficit farmers depended, lead to hunger
market dependence - inequality
wealth inequalities explain why poor suffer most
- prices double or quadruple in times of scarcity
- demand for food highly inelastic
- small shortfall allows traders to increase prices
- food as necessity confers monopoly power to traders
- can wealthy afford food
- accelerates polarisation of rich and poor
- famine benefits those with sizeable resoures
