Read the following case carefully and answer the questions that follow:
Vegetable prices have continued to go up in the Kathmandu Valley despite rising in supply from various parts of the country. The Kalimati vegetable market, the largest vegetable market in the cou ntry, is currently receiving around 1000 tons of vegetables per day. Last week the daily supply stood at around 600 tons. Despite a 50 percent decline in vegetable supply, prices of most of the vegetables are currently going up exerting pressure on the household budget. A snap survey conducted at Kalimati vegetable market showed that prices of vegetables h ad gone up in the range of 10 percent to 100 percent. Prices of all kinds of vegetables, like cauliflower, radish, soybean, tomato, pumpkin, and French bean etc. have gone up.
According to the information of the Kalimati Fruits and Vegetable Market Development Board, said it is a normal phenomenon for vegetable prices to increase during monsoon, as rain causes damage to the green produce. Yet the rate of price hike is higher this year because of floo ds and heavy rain that damaged or destroyed vegetables in various parts of the country. A lso, road blockades triggered by landslides, which have disrupted supplies, have played a role in raising prices. M any retailers are now taking undue advantage of the situation to further jack up prices. This, however, should not mean all retailers are profiteering, as those who have received substandard vegetables, lik e those spoiled by rain or other adverse weather conditions, are being forced to increase retail prices to cover up losses. The valley generally gets most of its vegetable supplies from Kavrepalanchowk, Dhading, Makwanpu r, Nuwakot and Chitwan. Although these places are not much affected... [abundant] rain has caused some damage to vegetables grown in these areas... [price] hike. The Ministry of Agricultural Development... said vegetables worth Rs 2.96 billion were destroyed in 31 districts by floods triggered by torrential rain that continues in last...
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month. Because of this, the situation at the Kalimati vegetable market has not returned to normal, as it is still seeing a supply shortfall of around 100 to 200 tons per day. The market used to receive around 800 tons of vegetables on normal days.
Questions:
a. Why vegetable prices have continued to go up in the Kathmandu Valley despite rising in supply? Give your answer with reason.
b. How is the price of vegetables determined in a perfect competition market?
c. What will be the effect on equilibrium price and quantity of vegetables when bad weather heavily damages the vegetable plants?
d. Explain the effects on equilibrium price and quantity when the demand for vegetables increases due to increase in number of households in Kathmandu valley.
