A Raja in India decrees that the rice farmers in his province must give him nearly all their rice to store for himself. After a bad growing season, the Raja continues to demand the rice, and the people are faced with a severe scarcity problem - famine. Luckily, a young maiden develops a plan to get the rice back from the Raja.
What good did the farmers in the story produce?
Is rice a scarce good?
Yes! It is a tangible item that people produce using scarce productive resources (natural, human, and capital). Thus, rice is not a free good. Like all scarce goods, it commands a price in the marketplace.
Why did the rice farmers give almost all of their rice to the Raja?
He commanded it. In return, he promised to store the grain.
What happened when the famine occurred?
The supply of rice decreased and the people had almost nothing to eat. Rice, which is already a scarce good, became much more scarce!
When a good becomes more scarce, what typically happens to the price?
When the price of rice rises compared to other goods, what do producers of rice typically do?
Produce more rice! In the near term, this will cover higher production costs and, hopefully, earn the producers more profit.
When the price of a good rises compared to other goods, what do consumers of that good typically do?
When the price of a good falls compared to other goods, what do consumers do?
Consume/purchase more. This inverse relationship between price and the quantity consumers will buy is called the Law of Demand.
Reading Level: Ages 4-8
Accelerated Reader Level/Points: .5