• Read the Case and answer Question 1 and Question 2at the end of the Case.
• The length should be a minimum of one paragraph for each question.
• Be sure to answer the questions using information from the case.
• Use an economic lens and use economic terms and concepts in your answers.

Case 2:BEHIND THE RUN ON RICEGogoi, Pallavi

"Behind the Run on Rice"Posted 4/28/2008 on MSNBC.comBusinessweek

Summary: Key Points in the Article

The demand for rice is increasing so rapidly that many stores are selling out new stock within hours. Large chains like Costco and Sam's Club have taken to rationing their rice shipments so that some customers don't find themselves without the now-prized grain. Ironically, there is not a current shortage of rice. Bumper crops in Thailand, Viet Nam, and India have filled grain bins across the globe.

So, what's driving the increased demand? Consumers fearing food inflation are the culprit. Many rice exporting countries experiencing civil unrest due to high food prices have imposed export bans or limitations on native grown rice. The result is a shortage of the grain in rice importing countries. As prices responded by moving higher more consumers began buying up rice and hoarding it for the future.

A global surplus has turned into several regional shortages due to consumer expectations of higher prices. This scenario provides a clear illustration of how some fears can become self-fulfilling prophecies.

Analyzing the News

Note that the price of rice has moved substantially higher on the global market due to reduction in global supply, as a result of the export bans and also an increase in consumer demand due to expectations of higher prices. The combination of these two factors is a recipe for higher prices.

Thinking Critically Questions

1.How can expectations impact demand?

2.How can an export ban impact prices?