South-Western College Publishing - Economics  
Refugees Return to Rising Prices
Subject Comparative Statics
Topic Supply and Demand
Key Words Prices, Open Market, Supply
News Story

Refugees are encountering high food prices as they return to Kosovo. Six pounds of potatoes, which cost 60 cents before the war, now cost nearly $2. Meat and sugar prices are prohibitive. It is difficult for refugees to subsist using the open market.

The greatest needs are for staples such as flour, rice, oil, beans, and sugar. In Prizren, there are 500 tons of flour in a warehouse, but because the warehouse was used by the Yugoslav army for storage, the bags are untouched due to the fear that the bags may be booby-trapped.

Aid workers give each family a one-month supply of staples as they re-enter the country. In addition, foreign countries have donated 10,000 tons of food. The World Food Program is establishing a bakery - the War Child bakery - that will produce 45,000 loaves a day for the needy.

In addition, the U.N. mission is working to restore electricity, water and garbage collection. Temporary joint Albanian-Serb commissions are being set up to govern the province.

(Updated August 1, 1999)

Questions
1. The price of potatoes has risen sharply.
  a) Draw a supply and demand diagram of the market for potatoes. Show the initial equilibrium price at 10 cents per pound.
  b) The price has risen to approximately 30 cents a pound. Show this new equilibrium on your diagram. What might have caused the shift(s) in the curve(s) that you have drawn?
2. There have been a number of developments in Kosovo that affect the market for bread. For each of the following, draw a supply and demand diagram showing the likely effect on equilibrium price and quantity, and explain what you have drawn:
  a) the booby-trapping of flour supplies
  b) the establishment of a bread factory to produce free bread for those in need
  c) the depletion of refugees' supplies of flour that they were given as they crossed the border
  d) donations of flour by foreigners
Source Debbie Howlett, "Refugees find food prices staggering," USA Today, June 25, 1999.

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