Commentary Coversheet
Economics commentary number: HL Number 1
Title of extract: Cabbage Price Soars in S.Korea
Source of extract: CNTV
Date of extract: 2010-09-29
Word count: 747
Date the commentary is written: 2010-10-11
Section of syllabus to which the commentary relates:
Section 2
Candidate name:
Candidate number: 003565-018
Lee 003565-018 2
Cabbage price soars in S. Korea
09-29-2010 14:31 BJT
Pickled cabbage, known as kimchi, is a requisite dish for nearly every South Korean.
But this year the country's citizens may find it hard to afford, as cabbage prices soar
due to a poor harvest.
Cabbage prices have surged, reaching more than 11 thousand won for just one,
equivalent to 68 yuan or about 10 US dollars. On average, the price is four or five
times the price in the same period last year. Many South Koreans are now shrinking
back from buying this expensive vegetable.
One resident in Seoul, S. Korea said "I don't know whether to buy it or not since it is
expensive and not fresh."
Hikes in cabbage prices triggered the price rise of kimchi which relies on the
vegetable as the main ingredient. Some kimchi factories are even facing the prospect
of shutting down. And restaurants can no longer provide kimchi for free, as they
traditionally do.
One restaurant owner said "Cabbages are really too expensive, and we have to
provide other free dishes instead."
Severe weather such as high temperatures and typhoons have resulted in the poor
harvest of cabbages this year. Gangwon-do is a region that produces 80 percent of
South Korea's total cabbage output. But its output this year only amounts to 20
percent of last year's total. Industry insiders predict the unusually high prices could
last one or two months, easing only when other plantation areas begin harvest.
Editor:Xiong Qu | Source: CNTV.CN
(http://english.cntv.cn/program/bizasia/20100929/102888.shtml)
Lee 003565-018 3
This article shows that the price of cabbages in Korea has soared due to a poor
harvest. The price of cabbages reached more than 11,000 won(10 US dollars), which
is four or five times the price in the same period last year.
The severe weather such as high temperatures and typhoon, especially
Typhoon Kompasu which wreaked havoc on the central region this year, caused the
poor harvest of cabbages this year. Therefore, the output was small and the price
has soared.
The following graphs show the rising price of cabbages due to the foul
weather and the decreasing demand for cabbages respectively.
Where S0 is the last year's supply curve of cabbages,
S1 is this year's supply curve,
P0 is the price of cabbages in the last year,
P1 is that in this year,
and Q0 is the quantity of cabbages in the last year.
This graph is the supply function. There is a positive relationship between
price and quantity supplied. This is the law of supply. A shift of the curve, so-called
change in supply, will occur if a variable such as improvements in technology,
government action, the prices of substitute goods, prices of resources, or number of
producers change. The severe weather reduced the quantity of cabbages in this year.
Therefore, the supply curve moves to the left side, and S1 curve has approximately
four times higher price at the certain quantity.
Lee 003565-018 4
Where D0 is the last year’s demand for cabbage,
and D1 is this year’s demand.
This graph is the demand function. Demand curve always slope downwards
from left to right; when price is high quantity demanded is low, when price is low
quantity demanded is high. Price and quantity are inversely related, which is called
the law of demand. When any other variable such as income and the prices of
substitute goods change, there is a change in demand and a shift of the curve. As
the price of cabbage increases, the demanded quantity decreases. In the article, a
resident said he didn't know whether to buy cabbage or not, which implies that
people are not willing to buy cabbage, since its price jumped.
The price of Kimchi has also risen. On the supply function graph, if the prices of
factors of production change, the price of the production also changes. In this case,
the price of cabbages, a main ingredient of kimchi, has risen, so the price of kimchi
has jumped up. Furthermore, as the price of kimchi is rising, the quantity demanded
is decreasing. Korean people will reduce the consumption of kimchi even though
kimchi is a requisite dish for them.
Lee 003565-018 5
In my viewpoint, Korean people will consume the substitute ingredients of
cabbage for kimchi. There are several types of kimchi: cabbage kimchi, cucumber
kimchi, radish kimchi, and so on. According to the substitution effect, Korean people
will buy more of other ingredients such as cucumbers. The substitution effect is
that as price of one good falls or rises, people buy less or more of other goods.
Korean people mainly eat cabbage kimchi, but the price of cabbages is skyrocketing.
Therefore, cucumbers, the substitute goods of cabbage, will be demanded more. The
following graph shows the increased demand for cucumbers due to substitution
effect.
In this graph, the demand curve of cucumbers moves to the right side. Since
the demand for cabbages is decreasing, that for cucumbers is increasing. Assuming
that the price of cucumbers is constant, the demanded quantity of this year is larger
that that of the last year, at the same price.
In my opinion, Korea should import cabbages from China. There are four
factors of production, which are land, capital, labor, and entrepreneurship.
Land is from nature, not human-made. Capital is human-made, and labor is manpower. Finally, entrepreneurship is organizing the other factors and taking risk.
China has a huge area and large population, which means China has enormous
amount of the two factors of production, land and labor. For this reason, the
agricultural products in China are opulent and their prices are cheaper than those in
Korea. Also, China is so close to Korea that the shipping charge is relatively low.
Korea is significantly lacking the supply of cabbages due to the foul weather and
therefore cannot fulfill the demand of the people and stabilize the price of cabbages.
The best solution of this problem is importing them from the adjacent country.
Lee 003565-018 6
Cites :
Alan Glanvile. Economics from a Global Perspective. Dolton:Winkleigh, 2009. pg 1929. print