Onions are an important part of the cuisine in most parts of India. In some seasons, the supply of onions comes down in the market. What do you think happens to the price of onions when this happens?
When the supply of onions decreases in the market while demand remains constant or increases, the price of onions rises significantly.
This is because onions are an essential ingredient in Indian cuisine, and people continue to need them regardless of price increases.
When supply is limited, sellers can charge higher prices because buyers compete for the available quantity. The scarcity creates a situation where buyers are willing to pay more to secure their supply.
This price increase serves as a market signal — high prices indicate to farmers that they should grow more onions, and to consumers that they should use onions more sparingly or find alternatives.
The government may intervene in such situations by importing onions from other countries, releasing stored onions from government reserves, or controlling prices to protect consumers from excessive price increases.
Explanation
The chapter discusses supply and demand on pages 6-7, explaining how prices respond to changes in supply and demand. It also discusses government's role in controlling prices on page 19, stating that 'the government controls the prices of certain goods' and sets limits to protect consumers. The onion example on page 20 illustrates how supply shortages affect prices.
Solution Steps
When supply decreases while demand remains constant or increases, prices rise significantly
Onions are essential in Indian cuisine, so demand remains high regardless of price
Limited supply allows sellers to charge higher prices as buyers compete for available quantity
Price increases serve as market signals to farmers (grow more) and consumers (use sparingly)
Government may intervene through imports, releasing reserves, or price controls