The paper "The Fruit and Vegetable Surge Cost" is a wonderful example of an assignment on macro and microeconomics. The demand and supply model explains how the change of one of the two factors affects the other. Demand is described as the quantity of a given commodity that the market requires to satisfy its needs. On the other hand supply is the quantity of a given commodity that the supplier is able to bring into the market. The model explains how the quantity supplied and quantity demanded of a commodity affects the price.
According to this model, when the supply is more the demand, the price of the commodity is likely to come down to reach the equilibrium. Equally, when the demand is more than the supply, the price is likely to adjust upwards to reach the equilibrium. Given the case of the occurrence of the Floods at Queensland State, many of the customers are likely the loss incurred as large farms with fruits and vegetables will be affected. The floods apart from destroying the produce while at the farms they will also cost the farmer in terms of preserving the produce before they reach the market.
The end result is decline in produce, meaning that the market demand will exceed the supply of the produce and consequently increase in prices. Let us consider the graph below which demonstrates what is likely to happen if demand for the fruits and vegetables exceeded the supply. Diagram 1: Graph showing demand and supply market If for example the price of 1 kg of fruits was £ 0.25, as the supply goes down, the supply curve will adjust anticlockwise.
This will mean that in the short-run the price of the commodity will increase while the demand will go down. This is because many of the users will go for substitutes. The graph clearly demonstrates how the price may go upwards from the original price when the supply meets the market demand. If the imported fruits and vegetables are certified to be of good quality and allowed to be imported into the country, then it will imply that the supply decline will only be short-lived. This is because the gap existing between the supply and demand will be met by the imported fruits and vegetables.
The effect of the imported pumpkins in the market is that it will increase the supply and thus demand will be exceeded. This will imply that in the short-term, the prices will adjust downwards as the market will be flooded by new dealers who want to take the early opportunity to make good profits from the lucrative business. The end effect is incurrence of losses by local producers who may be producing the pumpkins at relatively high cost.
The diagram below explains what is likely to happen if the imported pumpkins were allowed into the country. Diagram 2: Graph showing how the producers are likely to make losses from the business While the local farmers may be producing pumpkins at relatively high costs, the imported pumpkins will be relatively cheap. This will mean that imported pumpkins will be more affordable to the locals as opposed to the indigenous ones. This force the local farmers to sell their pumpkins below their average cost of production in order to compete with the imported ones and at the same time try to salvage some of the cost incurred during production.
The end result will be incurrence of losses by farmers. If the consumers do doubt the quality of the imported pumpkins, then the likely effect is that they will reduce their consumption of the imported pumpkins. At the hotels, the owners are likely to suffer the losses since the sales will definitely go down as many of the consumers will be very cautious of the long-term effects of the soup on the health of lives. The hotel industry is likely to be affected as the demand will have to go down.
The effect will be that the hotels will have to reduce their prices in such a way to attract more customers. As demonstrated in the graph, the hotels will continue to adjust the prices of pumpkin soups until they reach equilibrium. The hotels in this case are likely to make huge losses as the cost of production is likely to exceed the selling price. A decline in soup sales will also imply that some of the businesses will have to do away with some of the services like preparing pumpkin soup.
A decline in revenues will also imply that some of the hotels will have to cut down their costs of operation for them to break-even. Preparation of soup that is perceived to be of low quality is likely to impact negatively the hotel's reputation. Finally, the hotels may have to retrench some of its staff to meet the operating costs. On some occasions, the market equilibrium is perceived by certain quotas as an unfair and unjust scenario.
In these cases, society values sometimes may require that some adjustments be made. The government on many occasions is the one charged with the responsibility of applying different tools including the regulation of production and consumption of certain goods and services completely. In situations where the government discovers that the market is not fair to the consumer or the producer, it might decide to use the price ceilings and price floors to determine the price it may deem to be appropriate for the market.
The price ceiling is the maximum legal price that can be charged for a given product or service. The ceiling price is actually set just below the equilibrium price. Given the case of price ceiling for pineapples per box, it will imply that no matter what, no single retailer will be expected to sell above the $40 per box. In a price elasticity environment, setting the price ceiling will affect the supplier and benefit the consumer. The price ceiling will negatively affect the retailing market because it does take into account the change in the cost of production.
Setting the price ceiling will also mean that price for the commodity will only be elastic if it’ s below the ceiling and once it reaches the ceiling even if the demand goes high, the price will not change. This will deny the retailers the opportunity to make good profits when the demand for the same goods is high. The graph below illustrates what will happen if the price ceiling is set for the pineapples. The graph denotes that if the price of the commodity is set it will always remain the same even if the demand goes high.
However, the price is likely to go down further if the supply of pineapples exceeds the demand as shown in the diagram. The assumption that the price ceiling will work is that no single time the retailing price will exceed the cost of production. In other words, the retailers will still make profits under the ceiling price. Second, if the price elasticity is allowed to rule will impact negatively the economic interests of the consumers.
In other words, the product in which the price ceiling is set holds national importance. Finally, the price ceiling is set if it’ s believed that it will protect the consumer from unfair price competition by the retailers.
Dagwell, T. 2011, Fruit, Vegetable Cost Surge: Herald. Viewed 9 March 2012 from,