Economics Article Review: Demand vs Supply of Organic Products

This report provides an economics article review focusing on the article 'Demand for organic still exceeds supply for many goods' by Sterk (2018). The report summarizes the article's key points, highlighting the excess demand for organic products in the USA and Europe, leading to higher prices. It applies microeconomic principles, including the laws of supply and demand, to explain market dynamics and the impact of excess demand on prices and equilibrium. The analysis includes a graphical representation of the supply and demand curves and discusses how the market adjusts to achieve equilibrium. The report also touches upon fraudulent activities in the organic goods market due to high prices. The author concludes by explaining the market's adjustment mechanism to eliminate excess demand over time.

Running head: ECONOMICS
Economics: Article Review
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Chosen article for review: ‘Demand for organic still exceeds supply for many goods’
Summary:
As mentioned by Sterk (2018) in the article “Demand for organic still exceeds supply for
many goods”, the demand for the organic goods are exceeding the overall supply and it is
increasing quite rapidly, thereby leading to increasing prices for the organic raw materials and
finished products than the conventionally produced goods. Hence, the author highlighted that a
significant number of livestock, milk producers and food producers have started to depend
heavily on the imports of organic raw materials. The cons of this dependence are the lack of
authenticity and fraudulent activities occur during the trade process. Among the organic foods,
the prices of corn, soybeans and wheat are generally 2 to 3 times higher than the conventional
production, however, in Romania, it has been noticed that due to excess demand for organic milk
products, the livestock and organic milk producers feed organic crops to the cattle and that
increases the prices of the organic milk products. Many fraudulent activities have also been
noticed due to higher prices of the organic products, affecting the imports of the organic goods
(Sterk, 2018).
From the above summary of the article, it can be stated that the market in the USA and
Europe for organic food and raw materials experience excess demand. As per the law of demand
and supply, when the demand for a good increases, its price rises. At the same time, when the
price of a good increases, the market supply of that good also increases (Pindyck & Rubinfeld,
2015). When the market forces of demand and supply meet, equilibrium is reached and that
determines the market price and quantity of that product. Thus, changes in demand and supply of
a product affect its price and its movement is shown along the demand and supply curve of the
product, other things remaining the same (Cowell, 2018).

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S
D
E*
P1
P2
P*
Q*
Excess supply
Excess demand
Price of organic products
Quantity of organic productsQ1Q1’
However, in a situation of excess demand in the market, due to competition, the price of
the product rises along the demand curve and attempts to reach an equilibrium. This price rise
will lure the suppliers to increase their supply in the market and earn higher profits (Davies,
2019). The supply can be increased through only domestic production or through a combination
of domestic supply and imports of the products.
Figure 1: Demand, supply and market equilibrium of organic food products
(Created by author)
In the above diagram, E* is the initial equilibrium in the organic food market with
corresponding price and quantity being P* and Q* respectively. However, due to lack of
adequate production and supply of the organic food products, there is excess demand in the

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market, and the situation is shown above, with quantity demanded being Q1 and quantity
supplied being Q1’ and the gap between Q1’ and Q1 showing excess demand. This leads to a fall
in the price from P* to P1. However, according to the law of demand, the price of organic food
starts rising and supply starts increasing to reach to an equilibrium. With a rise in price, the
demand for the organic products starts falling. Hence, overtime, the market supply of the organic
products will increase, excess demand will get eliminated and equilibrium will be achieved.

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References
Cowell, F. (2018). Microeconomics: principles and analysis. Oxford University Press.
Davies, R. E. (2019). Laws of Demand and Supply. Baker Street Almanac 1. Available at
SSRN: https://ssrn.com/abstract=3364282
Pindyck, R. S., & Rubinfeld, D. L. (2015). Microeconomics. Boston: Pearson.
Sterk, R. (2018). Demand for organic still exceeds supply for many goods. Retrieved 1 October
2019, from https://www.foodbusinessnews.net/articles/12613-demand-for-organic-still-
exceeds-supply-for-many-goods