Potato Farmers in Bengal hit badly as prices drop sharply

http://www.thehindu.com/news/cities/kolkata/potato-farmers-in-bengal-hit-badly-as-prices-drop-sharply/article17424891.ece

The selling price of potatoes in India have dropped by 64% since this time last year. 50 kg of potatoes costed ₹550 last year but now only sell for ₹200. This is due to a decrease in demand and increase in supply. The demand determinant is a decrease in buyer’s income/number of buyers as a result of demonetization and the supply determinant is costs of factors of production/number of sellers. India is getting rid of the Rs 500 and Rs 1000 notes and replacing them with a new Rs 500 and Rs 2000 banknote. Demonetization has caused a tighter supply of liquid capital (cash), leading to a drastic drop in consumer spending, especially in regards to cash purchases. As most transactions are cash transactions, there has been a significant decrease in the number of buyers. This shifts the demand curve to the left, with a decrease in price and quantity purchased. This year’s “bumper crop” (an unusually productive year) in Bengal has lead to an increase from 95 lakh tonnes to 1.50 crore tonnes of potatoes since last year. This increase in supply shifts the supply curve to the right, indicating a decrease in price and an increase in quantity.

With the demand curve shifting to the left, and the supply curve shifting to the right, there is a guaranteed decrease in equilibrium price. Supply and Demand Graph for Potatoes

 

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