http://www.bbc.co.uk/news/science-environment-19254685
When a natural disaster occurs within areas prone to
disasters, economically they need to spend a lot of money in order to
re-establish the area and protect it from future disasters.
The price elasticity of demand refers to the responsiveness
of the quantity demanded of a good to a change in its price when all other
influences on buying remains the same. Demand itself can be elastic, inelastic
or unit elastic. If the quantity of a good demanded does not change when the
price changes, the price elasticity of demand is zero and the good has a
perfectly inelastic demand.
This graph shows a
perfectly inelastic demand.
Within an area that has been affected by a natural disaster,
the government would have to spend a lot of money in order to maintain the
affected area and to sustain the other areas which haven’t been affected. We
must take into account that many people have lost homes, crops and means of
transportation have been made scarce by the disaster, so the people will rely
greatly on the government to help them. The people who have been injured would
need medical attention and this will have to be done through the government who
will allow helicopters to go around the affected area in order to help. This
costs money, as people have to be paid to provide these services and these
means of transportation are not cheap.
In areas such as Japan as much as US$210 billion was spent
after the tsunami hit them in 2010. People would demand more and the price for
these items would have gone up due to the limited amount made available. The
sellers from outside regions could sell their products to the people in the
affected area at a higher price because they are catering for an area outside
their usual working domain and because they have to cultivate more than they
normally do to provide for these people. This would lead to the momentary
supply being perfectly inelastic as the quantity supplied immediately following
price change remains constant.
However, if there was a rise in income goods which are
considered luxuries to some such as coffee, there may be a group of people who
are willing to exchange the coffee for tea as tea is cheaper. This is turn would mean that coffee is an elastic good
because a raise in price will cause a large decrease in demand as consumers
start buying more tea instead of coffee.
Many people would have to stop working due to accidents
caused by the disasters which would mean that people would have to stop working
for a while and recover; this would come to mean that people be using their
savings in order to take care of themselves and this would be seen as an
expense. There would therefore be an increase in demand for medical supplies.
Income elasticity of demand would measure how the quantity demanded of the
medical supplies would respond to a change in income with other things
remaining the same. Since there is no increase in income, people will have no
choice but to lower their demand for some products as they may not afford it in
order to be able to recover. Therefore there will be an elastic reaction in
demand.
The disasters will cause market
failure to occur as social cost of production to exceed private cost. It would
lead to the government having to deal with matters of health care and education
causing the social benefit of consumption to exceed the private benefit.
Market failures occur due to under
or over production which arise when there are price and quantity regulations,
taxes and subsidies, externalities, common resources, monopoly and high
transaction costs. For example, climate
change can cause the natural disasters to occur and because of that it can
cause market failure due to under and over production in competitive markets.
Hence the people have to be educated on how to keep the environment clean. This
is when the government will step in.
Depending on the government’s
budget after redeveloping the affected areas, taxations on goods could be
implemented together with trading and regulations. The government has to create
policies and new technologies which are eco-friendly and educate the people
about what harm their products have on the environment and how it can be
mended. In For example some goods would have to reach the standard appropriate
to that demanded by the government or else companies would be fined.
To conclude, as seen above, the
demand of a good can vary on many factors such as income and the supply
available. It can be seen as a price elastic demand when there is a substitute,
whereby when prices get too high for one good, the people can move to another
similar good which is at a lower price. Income also has a role to play in the
sense that if it does not increase but the price of the product increases, the
amount that someone could afford of that product decrease which in turn causes
that person to change product altogether to one cheaper.
In some cases however, although
the price increases the quantity demanded will stay the same because the
product could be seen as irreplaceable and hence, no matter how high the price
of the good will rise, the consumer will still buy the product.
Market failures can also occur as
a result of natural disasters due to under production. This will cause the
government to think of incentives in order to educate the private companies in
ways to have a more eco-friendly outlook and to get them more involved in
environment protection. This in turn will not only benefit the government but
can also reduce the effect of natural disasters.
Individual 4