Societal Outcomes: Predicting Food Market Prices and Quantities

AbstractThis chapter explains how societal outcomes can be seen as the result of individuals interacting with each other. Markets are physical places or online environments where interactions occur, as people exchange goods and services in pursuit of their individual goals, given their own production possibilities, income or wealth, and their own preferences for consumption. To explain and predict observed prices and total quantities, we proceed graphically in two dimensions to derive supply curves from production possibilities, derive demand curves from incomes and preferences, and then show how interactions among many sellers and buyers lead to observed outcomes for each group of people with and without the possibility of trade with others. We explain how supply, demand and trade diagrams provide qualitative explanations and predictions, and show how a population’s food consumption response to policy or other changes can be measured using elasticities of demand with respect to price and income. Measuring change in elasticity terms allows us to classify goods as more or less responsive to policy intervention, and discuss factors that influence the supply or demand response of different populations to interventions for each kind of food.