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During the lectures it was noted that India is one of the world's largest producers and consumers of onions

Economics

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During the lectures it was noted that India is one of the world's largest producers and consumers of onions. India exports onions to the world market. There is also a significant demand for onions within India.

(a) Research shows that the price elasticity of demand for onions in India is <1. What does this mean and why might this be the case? [1 mark]

(b) The price of onions within the domestic market can be hugely volatile. Why might this be the case and what does this suggest about the supply curve in the short run? [1 mark]

(c) When prices are volatile the government often intervenes and imposes a binding price to assist the poor. Do they impose a price floor or ceiling and what is the affect on market outcomes in the short-run and the long run? Explain with the use of diagrams [2 marks]

(d) What is the income elasticity of demand and what does it mean if the income elasticity of demand is negative? What goods might fall into this category? [1 mark]