The paper "Economics of Demand, Supply and the Concept of Elasticity" is an outstanding example of a macro and microeconomic assignment. The key point is the reduction in numbers of sows as the pork farmers adjust to the introduced husbandry practices. This can be shown in the diagram below even though it may not affect the production of pork significantly. The quantity of pork supplied will reduce as denoted by the leftward shift of the supply curve from S to S1. This will have an effect of increasing the price of pork from P1 to P0 and reduce the quantity demanded from Q1 to Q0. Because pork and beef are substitute goods, an increase in the price of pork due to low supply will lead consumers to consume more beef so as to derive the same levels of utility (Saada, 2009).
As a result, the demand for beef will subsequently increase with an increase in the quantity demanded. This can be diagrammatically shown as below -: The demand for beef increased from D0 to D1 due to the high prices of pork and increased the price from P1 to P0 while increasing the quantity demanded from Q1 to Q0. From the above diagram, the supply of sorghum reduced as the crop was drought depleted.
This has been reflected by the upward shift of the supply curve from S0 to S1 and increases the price from P0 to P2 hence the prices of sorghum continue being stronger. In addition, China’ s thirst for baijiu, which is distilled from sorghum, has increased the demand of sorghum from D0 to D1, which again increases the prices from Po to P3 as the quantity demanded increases from Q1 to Q3.
This compounds the strong prices of sorghum. Eventually, the interaction of the forces of demand and supply will come up with a new equilibrium price and quantity of sorghum, which will be P1 and Q1 respectively as reflected, by the new demand and supply curve. Question 2 (ii) The derived demand for Australian sorghum is price inelastic because changes in prices of sorghum result in changes in quantity demanded which is less than proportionate. In this case the PED < 1 implying that the commodity is a necessity (Wong, Selvanathan & Selvanathan, 2013).
The situation is favorable only from the supplier’ s viewpoint because the total revenue and price are directly related and price increments will end up pushing the total revenue upwards notwithstanding the decrease in quantity demanded (Chauhan & Chauhan, 2009).
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Chauhan, S. P. S., & Chauhan, S. P. S. (2009). Microeconomics: Theory and applications, Part-I. New Delhi: PHI Learning Private Limited.
Chen, D.L. (2001). World consumption economics. London: World Scientific
Henzell, T. (2007). Australian agriculture: Its history and challenges. Collingwood, Vic: CSIRO Pub.
Guisán Seijas & María Carmen. (2005). Macro-econometric models: the role of demand and supply. Hyderabad, India: ICFAI University Press.
Jain, T. R., & Khanna, O. P. (2008). Business economics. New Delhi: V K Publications
Saada, A. S. (2009). Elasticity: Theory and applications. Ft. Lauderdale, FL: J. Ross Pub.
Wong L, Selvanathan E & Selvanathan S (2013). The Changing pattern of meat consumption in Australia http://www.murdoch.edu.au/School-of-Management-and-Governance/_document/Australian-Conference-of-Economists/Changing-pattern-of-meat-consumption-in-Australia.pdf