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Setting of the passage is kitchen. Presence of ingredients like onion, and activities like cutting, dropping the knife etc. suffice this answer.
A story's setting specifies where and when its plot takes place through the use of literary devices. A story setting, also referred to as a background, can be created from nothing or be based on actual places and times in history (such as a specific city, or the house of a character). For instance, Andy Weir's The Martian takes place in the future, in space.
Everything that occurs in a story takes place against a backdrop, and the setting frequently makes a considerable impact on the atmosphere. This is why horror stories are generally set in remote, unsettling locations and romance novels are frequently set in tiny, comforting towns (a Transylvanian castle, a cabin in the woods).
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