MOD003327 - UK Food Market: Supply, Demand, Failure, & Intervention

This report examines the UK food supply market through the lens of economic theories, particularly focusing on supply and demand principles as outlined by Krugman and Wells. It analyzes the impact of the Covid-19 pandemic on the UK food market, illustrating shifts in supply and demand curves, equilibrium price and quantity, and instances of shortage and surplus. Furthermore, the report discusses market failures and government interventions in the food sector, providing examples of strategies implemented by the UK government to mitigate the negative effects of the pandemic. The analysis includes price controls, taxation policies, and other interventions aimed at stabilizing the market and ensuring food security.

Economics for
Business

Executive summary
This first task is about the application of economic theories from Krugman & Walls for
understanding supply and demand principles which can be used to UK food supply in this
pandemic situation. These principles have been explain with the use of graphs in relation to the
chosen food supply market. Also, related examples have been used to make the whole
explanations better. The graphs of basic supply and demand and there movement have been
described with the use of such graphs. Furthermore equilibrium price and quantity along with
how it is shifted with supply and demand curve and shortage and surplus have also been
included.
Second task explain the economic principle of market failure and interference of
government in the supply and demand of food related products in UK economy. Examples have
been included for making the government interventions. Also, sources like you can use and
government publications have been taken into account for providing real examples. Discussion
and analysis have been done for four strategies chosen by the UK Government for raise the UK
food supply market from the losses due to covid-19.

Introduction
An economy is the large set of production and consumption activities which are
interrelated for the purpose of allocation of scarce resources. Economics for business involves
study of number of aspects and functions of a particular market place such as demand and supply
which impact the business activities. Since the resources are very limited and its consumers are
in large number, therefore it becomes difficult to allocate it so that each section of the society
have the scarcity resources. An economy comprises of production factors, methods of
distribution and consumption. In this report, theories of demand and supply included for
understanding the downfall in the UK food market because of covid-19. In addition to this,
reasons for market failure and the intervention of government in the supply and demand of UK
economy have also been included.
Task 1
Krugman and Wells are well renowned authors who have given the demand and supply
theory which are the main detriments of any market. This theory explains that demand is that
principle of economy which refers to consumers' desire to buy goods and services. It reflects the
willingness and power of people living in a specific place to buy something. Krugman and
Wells, provides that economy is the place comprising number of buyers and sellers in a perfectly
competitive market. The demand function depicts DX = f(Px, P1, P2,….. I,T, Z,…).
Where, Dx= quantity of good X demanded
Px= price of good X (the “own price”)
P1= price of good 1 (other prices)
I= income
T= general environment
Z= expectations
According to the authors, there is a shift in the demand curve, when the demand changes,
supply and prices also change. In other words, when demand is increased supply is low and vice
versa, other factors being constant. The relationship between demand and supply is inverse. If

the price of goods or services is high, the demand for that particular item will be lower.
Furthermore, when the price is high, the quantity of goods will be limited. The slop is usually
downward.
Law of supply
Supply is the economic law which explains the quantities of a particular goods or services
being sold at a specific price. The relationship of supply depicts upward slop. In other words,
there will be more quantities supplied when the price goes up. There are some factors which
must be constant for determining the relationship between these two detriments of any economy.
Similarly, time is an important factor which should be considered for determining the current
conditions.
1. Shift in supply curve in relation to UK food market due to Covid -19
Supply curve right shift
An increase in the change in supply shifts the supply curve to the right. It depends on the
relationship that price and quantity share. The change is supply occurs because of the price.
Provided that demand curve is not changed. UK food market is facing crisis because of the
increasing cases in coronavirus. It has become difficult to determine the prices for coming
months. There is no export of food products in European as well as other countries in the world.

During the pandemic, the prices of food products have increased because of limited stock and
lower willingness of the people to buy these.
Supply curve left shift
When there is decrease in the change in supply then the supply curve shifts to the left. It
will start when the quantity supplied is low then the curve shifts to the left. These may be
because of the prices of raw materials, expectations of sellers, number of sellers and so on. In
relation to UK food economy, there is a problem of food supply from one market to another.
2. Shift in demand curve in relation to the UK food market due to covid-19
Demand curve right shift

There are number of factors such as price, income, taxes, taste and preferences and many
other similar factors which if clause higher demand then the demand curve shifts to the right. In
consideration to UK food economy, with the increasing number of coronavirus patient in UK
people started preparing healthy foods and vegetables which ultimately leads their higher
demand in the market.
Demand curve left shift

There may be situation and the factors may make the demand fall down which causes the
curve to shift to the left. Some of the reasons for the same could be decrease in income, fall in
the price of a substitute product, goods being normal good, etc. During this pandemic, people
have started consuming green tea to which coffee is a substitute. There is a fall in the demand of
coffee as people wish to improve their immunity system hence there is an increase in the
consumption of green tea.
3. Equilibrium price and quantity
Equilibrium price and quantity along with the explanation of equilibrium movement with
supply and demand curve shifts. Equilibrium price refers to that point where the supply of
goods or services is exactly e the same as they are demanded. The supply matches the demand
for a particular product or service. When the forces of supply and demand are equal the market is
called to be in the state of equilibrium.

Equilibrium quantity is a situation where there is no shortage of surplus of a product in
the market. At this point, supply and demand intersect each other. In other words the amount of
an item that consumers want to buy is equal to the amount of being supplied by its producer. The
situation is is very rare in practical life. Surplus in the quantity occurs when the quantity of goods
or service supplied is more than the quantity demanded at the existing price. It causes downward
pressure on price.
The demand curve is generally downward sloping and the supply curve is either of what
or to the left. If the supply curve is to the left or of word then it will cause higher equilibrium
price and a lower equilibrium quantity. In relation to UK food market, if the supply of a
particular food increases, then there will be higher equilibrium will be higher equilibrium and
lower equilibrium quantity. In such situation the prices of the product can increase but the
quantity sold is very low.
If the supply curve is downward or shifted to the right then it indicate lower equilibrium
price and a higher equilibrium quantity. For example, if the demand of green tea in the UK food
market shows an upward shift in the supply curve, the equilibrium prices will be lower and
quantity e will be higher. The prices remain lo and the quantity of the goods sold increases with
this shift.
4. Shortage and surplus along with the graphical representation

The economic term shortage defines a condition where the quantity demanded is higher than
the quantity supplied at the market price. Some of the prime causes of this condition can include
increase in demand, decrease in supply and interference of government. There is a difference
between the word scarcity and shortage and nothing in these two terms are common. The
situation and harms if demand of a particular product as compared to available supply. The
market becomes disequilibrium. However, this situation is usually temporary and vanished with
the replenishment of the products leading to a situation of equilibrium.
On the contrary, surplus refers to the amount of a resource that is more than the portion that
actively utilized. Decorate with different items such as income, profits, capital and goods.
Surplus has different meanings. In relation to inventors, surplus is a situation where the products
on the store are unpurchased. When it is about budget surplus, then it could mean when there is
left over tax revenue after all the programs of the government are fully financed. The situation
arises mainly because of disconnection between supply and demand for a specific product due to
the unwillingness of some people to pay more than others.
TASK 2
Market failure refers to the situation of inefficient distribution of goods and services in
the free market. The two forces such as supply and demand play the main game and are
responsible for creating change in the current situation. Change in one of the forces results in a

price change and a corresponding change in the other force. Such a change is responsible for
price equilibrium in the market.
There could be a number of causes of market failures such as:
1. Public goods refer to the products which are consumed and used by a large section of
population at the costs which remains the same even when the number of consumers
increases. If a particular section of population that consumes the goods fails to pay but
continuous using the goods as actual payers, then the market fails.
2. Market control is the outcome of such situation where either the seller or the buyer holds
the power to find the price of goods or services in a market. It hampers the natural forces
of demand and supply from deciding a price of goods in the market.
3. Imperfect information among the buyers or sellers in the market may make the market to
fail. When the buyers or sellers does not have sufficient information then and there
becomes imbalance in the willingness to pay a for a specific product or service.
According to the reports prepared by the UK Government, it has been provided that you give
food market was in the face of re adjusting due to BREXIT but then COVID hit the market
again. Some of the interventions provided by the government by taking into account four factors.
These factors have been analyzed in relation to the UK food market. These are:
 Price controls- The UK food market was making adjustments because of the BREXIT and
when the COVID hit the market yet again. This increased the prices of food items, dairy
products, and other agrochemical inputs for making the healthy product. However, the
government has taken this matter in its hands for controlling the increased prices by making
the most needed and healthy products available for the poor and weaker sections of the
society. This step was taken after the inflation gone up and then there was a time of deflation.
The price control was taken for stabilizing the price fluctuations.
 Taxation- The virus COVID 19 has affected UK food market very badly. The agriculture
activities in the country to grow new seasonal food and harvest them has become difficult as
the farmers are not getting enough profit as they used to get in normal situation. With the
difficulties arose because of the virus has made the government charge some of the food at
higher rate leading to higher prices. In the current scenario, the government has charged huge
taxed on the products being imported from China and other countries. Some countries have

implemented food and agriculture trade measures, generally to restrict exports and liberalize
imports, but these have been nothing like as severe or harmful as the unilateral measures
adopted during the 2007-08 and 2010-12 food price crises.
 Fiscal policies- COVID 19 has proved to be an economic issue around the world in case of
food and other nutritious food. It has misbalanced the fiscal policies of UK government in
food economy and medical facilities. There are co-ordination of government with each part of
the country so that this issue can be combated soon and every individual receives food
sufficient for their healthy lifestyle. Government has formulated number of policies for
controlling the inflation in this pandemic situation so that all the sections of the society get the
food and other important things for their healthy survival.
 Poverty programs- UK people living in the areas which are fully developed or underdeveloped
already facing inequality of income and other amenities. These individuals often face
situations of poor health quality, lack of income, cramped houses, fuel poverty, poor
educational facilities and many more similar outcomes. Furthermore, such people often fail to
have sufficient saving and some part of the poverty human are not able to save for them for
meeting the additional unplanned costs or gaps in income. Getting infected with the virus will
make the poorer more poor as they will not be able to afford effective treatment and food
products for making their immune system strong. Also, it will affected their families as well.
Additionally, the restrictions in place are likely to exacerbate the inequalities experienced by
those on low incomes, low wealth, and living in deprived areas and in material deprivation.
Conclusion
From the above report, it can be concluded that supply and demand are the main activities
in any market. There are certain principles given by various authors which are used for
understanding the mechanism of these two terms. In order to study the fluctuations in supply and
demand in UK food supply, graphs have been used. In addition to this, market failure has been
explained by applying economic principle for the same together with government interventions
in supply and demand of food related items in UK economy. Both of these topics have been
covered by providing examples from number of sources such as you can use and government
publications.

REFERENCES
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