Monday, June 25, 2007

1a. Explain how equilibrium price is determined. (3marks)
Equilibrium price is the price where the market clears and that quantity demanded meets quantity supplied. There is neither shortage nor surplus. The market is in equilibrium.
This is true when demand curve and supply curve intersects at point E, where it is known as the equilibrium point. At equilibrium point E, equilibrium price is PE. Should price be higher than the equilibrium price, there will be surplus and there will be a downward pressure on price till equilibrium price is reached again. Should price be lower than PE, there will be a shortage and there will be an upward pressure on price till PE is reached again.

1b. With the aid of a diagram, explain how changes in the factors described in
the article affected the price of grapes. (4 mark)


Price of grapes is affected both by changes in demand and supply factors but largely supply factors. Demand for grapes fell whereas supply of grapes increased greatly.
Demand factor:
 Demand for grapes fell as a local winery has collapsed.
Supply factors:
 Supply of grapes increases due to dramatic increase in plantings over the last seven years due to expansion of the industry.
 Successive favourable seasons such as mild summer and minimum rain which meant little damage to the grapes

Graphically, demand curve shifts to the left and supply shifts to the right (students
might want to comment on the extent of the shifts). As a result, equilibrium point
moves from E1 to E2. Price fell from P1 to P2.


2a. Define price elasticity of demand. (1mark )
Price elasticity of demand refers to the responsiveness of quantity demanded of a good to a change in its price.

For Qn (2a) students must give definition in words not the mathematical expression.

2b. Use the concept of price elasticity of demand to explain why the
exceptional crops had not been positive for grape-growers.
(3marks)

The exceptional crops had not been positive for grape-growers because the increase in supply had caused price of grape to fall such that income of grape growers were adversely affected. This is because grapes are the main ingredient for wine and therefore it has an inelastic demand (PED<1). Thus when price of grapes fell, it would not be compensated by a proportionate the increase in quantity demanded for grapes Graphically, when supply of grapes increases greatly, ceteris paribus, there will be a rightward shift of the supply curve from S1 to S2. Price falls greatly from P1 to P2 but quantity demanded for grapes only increase slightly from Q1 to Q2. The gain in revenue ZE2Q2Q1 is much less than the loss in revenue P1P2ZE1.This suggests that there will be a fall in revenue.





3. With the aid of a diagram, explain how the wine market will be affected due to the change in the price of grapes. (3 marks)



Grapes are factor of production of wine. As the price of grapes falls drastically, this means that the cost of production of wine will fall. This implies that the supply of wine will increase. Supply curve of wine shifts to the right from S1 to S2, ceteris paribus. Price of wine falls from P1 to P2 and quantity demanded for wine increases from Q1 to Q2.

4. Imagine that you are the chair person of the Riverland Wine Grape Growers Association. Evaluate 2 methods which you can adopt to prevent a recurrence of the problems described in the passage. (6marks)

Students can suggest ways to reduce the growth of industry: 1. Limit the number of grape growers in the industries by increasing the barrier of entry to limit new potential grapes growers. Examples are such as increasing payment for license fee to the Association, reducing the availability and allocation of land for growing grapes. 2. Increase the cost of production on existing grape farmers. This can be done by increasing the rental cost of land, interest of capitals and wages of labour or even through increasing of agricultural tax or decreasing agricultural subsidies This helps to reduce the supply of grapes Evaluation: May be anti-competitive in nature. May result in opposition by grape farmers Students can also suggest ways to establish new markets for grapes. 1. Embark on R&D to expand the uses of grapes so that increase in demand for grapes may help meet the increase in supply of grapes.

Evaluation: Takes time and incur large research costs 2. Explore new markets overseas to sell the excess supply of Australian grapes. Evaluation: Depends on the success of free trade agreement with partner country. May benefit Australian but not the importing country as price of grapes produced by importing country may be depressed robbing livelihood of farmers in the importing country.

Tuesday, April 17, 2007

Ride the Wave

Economics is about making the right choice. Find out what economist think the next big thing is for people to capitalise on and get rich from in this 21 century. Watch this video! You might be making the right choice...


Ride The Wave - These bloopers are hilarious

Survey to win iPod!

Hi students,
An international survey is being undertaken into students' perceptions of economics. It is being conducted by Andrew Mearman (UWE, Bristol) and Tim Wakeley (Griffith University, Australia) as part of the mini- project funded by Economics Network. The major goal of the survey is to ascertain students' perception of the economics discipline and to identify factors which influence those perceptions so as to improve curriculum design, improve recruitment, retention and overall satisfaction with economics.

All students taking part will have the option to enter a prize draw to win an iPod.The survey can be completed online until 30.08.07. Students wishing to complete the survey should go to http://www.survey.bris.ac.uk/ltsn/perceptions.

Monday, April 9, 2007

Tomatoes!

Hi all, this is an impromptu attempt to come out with a worksheet to teach price elasticity of demand. YIKES!!
As you guys know that your test on Demand, Supple and Price Elasticity of Demand is just round the corner, I would very much like to start looking at the application and analysis on price elasticity of demand with this article on “Tomatoes”!
Please do me as well as you a favour by reading the following articles and try to answer the following questions. But of course, have your notes with you as you attempt those questions.


NB: You are strongly encouraged to download the article so that we can discuss in class.



Tomatoes: A star is grown
A national advertising campaign is set to begin promoting the humble fruit's virtues.
By TOM ZUCCO, Times Staff Writer
Published January 25, 2006

[Times photo: Bill Serne]
John M. Jack oversees tomatoes as they run through a vat of chlorinated water to be cleaned and sanitized at West Coast Tomato in Palmetto.


It's red, round, a little seedy, and as much as a fruit can be, about to become a national TV star.

For the first time in its 50-year history, the Florida Tomato Committee on Monday will begin a national ad campaign touting the virtues of the Florida tomato.
Four 15-second spots will repeat 600 times over the next 21/2 months on The Food Network, Discovery Health, DIY (Do It Yourself) and other cable channels. The $500,000 campaign is aimed at women age 25 to 54 and was developed by SenaReider, an ad agency based in San Francisco.

The ads are relatively simple, but not dull. One spot shows a picture of a stunningly plump tomato with a female voiceover:
"A whole tomato contains only five grams of carbs, no cholesterol, and was once thought to be an aphrodisiac.
"Fresh, Florida tomatoes.
"You're into that ... aren't you?"

Cute. But to Florida's nearly 125 commercial tomato growers, the messages have a deeper importance.

Virtually all the field-grown tomatoes in the United States sold from December through May each year come from Florida. For the entire year, the state accounts for about 1.5-billion pounds of tomatoes, or 50 percent of all of the domestically produced tomatoes sold in the country.

The 2004-05 hurricane seasons, however, put Florida tomato farmers in a pickle. The storms wiped out many fields and sent the price of tomatoes to triple in some cases. Some restaurants, including Wendy's, were forced to take tomatoes off their menus or make tomatoes available only upon request.

After each hurricane season passed, Florida growers replanted quickly and got their shipments into stores. However, this did not bring good news to the growers as prices started to fall. There was a tomato glut in 2004 and again last year. The price sank so low early last year it was cheaper for growers to let their tomatoes die on the vine than to pick, wash and ship them for sale. Farmers wound up donating more than 700,000 pounds of tomatoes, in part to draw attention to their surplus.

This is where the ad campaign comes in. The spots praise the fruit's succulence and health benefits, and also include much-needed handling messages. The ads are also designed to bring retailers into the campaign.

"It takes a little time," Samantha Winters, director of education and promotion for the Tomato Committee, said of the effort to inform the public. "We want people to know prices are coming down, the crop is here, and we're excited about this season.


"The tomato," she said, "is the big hero."


Questions:

  1. Using demand and supply diagram, illustrate how the market for tomatoes was affected when hurricane hit Florida in 2004-05.
  2. Explain why restaurants owners are either taking tomatoes off their menus or only serving upon requests?
  3. Using the concept of price elasticity of demand, explain why the increase in the supply of tomatoes did not bring good news to the growers at all.
  4. Explain the reason behind the Florida Tomato Committee’s decision of launching the ad campaign. How successful do you think this ad campaign will be in helping the tomato growers.



Sunday, April 8, 2007

Pepsi vs Coke


Pepsi vs Coke - The funniest home videos are here

Pepsi Price Surprise

A price change in Pepsi led to more students drinking Coke.Watch it!

Demand Supply, Groundwater and Public Policy

This video explains how government's water conservation policies can help to decrease the demand and increase the supply of water in today's world where water is becoming more precious and scarce. Determine how would the demand and supply curves be affected after imposing the water conservation policies are imposed.
Note: the issue of water conservation is very real and urgent! Please do your part to help our Planet Earth. Planet Earth needs our help.