Short Answers for Business Questions - Assignment Example

Name: Date: Institution: Q1 a) The volume of wheat export in Australia has been increasing each year. For instance in the year 2015-16 the volume increased by 2% this is according to the Australian Bureau of Agriculture and Resource Economics (ABARES). The increased production of wheat within the country has led to a high level of wheat exportation. The high wheat exportation in Australia has been brought about by; growth in demand for wheat milling. The country exports wheat to a number of countries such as China, and India (Liefert et al. 2010) In Australia wheat is produced in large farms where other crops are also produced. Such crops include; sorghum, oats, barley among other grains. Due to the fact that there are a number of alternatives to wheat production within the country, it implies that there is a high elasticity of demand for wheat export. Their greatest alternative for wheat exportation in this country is wool production among other sheep products. The high demand for wool in the country has been brought about by; disappearance of wool supply in some countries such as; South Africa, Uruguay, New Zealand, and Argentina. This has ensured that there is a high demand for the wool exportation from Australia to countries such as; France, Netherlands, Italy, Belgium, UK, Japan and US (Johnstone, & Mazo, 2011). This makes the alternative production to wheat production in Australia. This is therefore what constitutes to the high export elasticity of demand for Australian wheat. b) The wheat prices in Australia increased by 20 % in the western region of Australia. This has therefore contributed to shrinking of the global supply forecast. Southern Australia has also experienced dry conditions in the recent years. This has contributed to the low wheat supply and as result prices of grains have gone up. The shortage of wheat produced within the country is responsible for the high prices in the short run. However, it is expected that in the long run the prices of wheat and other grains will be back to normal since the weather condition is expected to change. The economy experiences slight wheat supply elasticity. This is because the harsh weather condition in the country both in the southern and Western Australia has affected all the agricultural factors in the country. Since sorghum and other grains are the alternative crops for wheat, they face the same challenge. This reduces the alternative supply for wheat in the country. An increase in prices will increase the quantity of a commodity supplied by the firm. This is to ensure that the firms are able to enjoy the profit in the short run. The wheat is sold and milled for bakery market. The increased wheat supply in the country as a result of the high demand of wheat flour which is used in the production of a number of food stuff which includes; crumpets, muffins, cereal bars, bread, crispbreads, confectionery such as liquor ice and savory snack foods. Such commodities have a high demand in the external economies and therefore the country exports them to other countries such as China. There is no alternative crop that can be used instead of wheat for the country to produce such products, and therefore there is a high inelasticity of supply. c). In Australia, chicken meat remains the favorite meat; this is according to the data released by ABARES. The level at which chicken meat is consumed in Australia in the recent years has increased compared to the past years. The reason as to why consumption has increased is due to the fact that chicken meat is affordable unlike in the past. In the past, chicken meat was considered for major occasions and events. However, recently the trend has greatly changed (Fell et al. 2012) Chicken industry has also encouraged consumers to purchase their products by providing cheaper and affordable products. Research has also ensured that chicken productivity has been improved by providing guidelines on better bird nutrition and feeding measures, improved housing and husbandry, genetic advancement of the birds ensuring that they are good to feed converted into meat. Poultry farming is a common source of white meat. The other source of wheat meat is fish farming. However, farmers in Australia find it economical to rear chicken than fish farming. This is because poultry farming requires less capital in relation to fish farming in terms of maintenance, feeding, and space. This would serve as an alternative source or white meat. However, many of the Australians have decided to reduce meat in their diet for the purpose of their health. In that connection, therefore, they have opted for legumes such as beans, peas. They have also preferred nuts and seeds such as peanuts, cashew nuts, pine nuts among other nuts rich in proteins. Due to these numbers of alternatives to chicken meat, and their relatively lower prices, there is a slight elasticity for chicken meat in Australia. Q d) Primary supply of chicken meat in Australia remains slightly inelastic. This is because the country has put quarantine measures in place that ensures that chicken meat is not freely imported into the country. The measure is put in place to ensure that the local commercial poultry farmers are protected, it is also meant to ensure that the native birds are free from disease. This measure also ensures that the consumers are protected from a number of certain food safety hazards. The country also ensures no live bird is imported in the country. This is to ensure that the birds are free from diseases from other regions. For genetical advancement, fertile eggs are imported into the country. they are hatched under quarantine facilities, they are then restricted under high veterinary control until they are nine weeks of age after hatching where they are taken out of quarantine to suitable breeding farms. The country is also not a significant exporter of chicken meat. This ensures that the high local demand for chicken meat is met within the country. Primary supply of chicken meat, therefore, remains high due to the emerging demand and expanding market share for chicken products. Q 2 The 457 visa scheme was a visa for overseas and Australian employers. These employers were to sponsor the skilled overseas workers in order for them to work in Australia temporarily. Anyone holding this visa is entitled to work within the country a period of four years. Such an individual can also bring a family member into the country. it should be noted that such an eligible family member have unrestricted study or work right within the country. However, it is not guaranteed that you must work for a period of up to 4 years. For instance, in case your employer has been in trade with Australia for 1 year then the visa is granted for a period of 18 months. An individual holding the 457 visa has no a number of restrictions that he/she should move in and out of the country. Such workers are only entitled to work for their sponsors and not for any other organization and may not work as a volunteer (Philibert, 2008). There are a number of factors that are considered for one to qualify as a holder of this visa; one, the employee has to meet a given level of skills. The employee should also meet a given level of English language requirement. They should have a good conduct since character and health are also factors to consider. The Australian government, however, has shown interest in abolishing this visa scheme. The reason for scrapping this visa is that most of the Australians are not in a position to secure job opportunities while foreigners have occupied these job opportunities. The visa, however, will be replaced by a new visa which allows an individual to work for a period of two years. The worker under the new visa will not be in a position to apply for a permanent residency and therefore will be required to have an additional year. This move by the Australian government has mostly affected the meat industry in the country (Wood, & Jotzo, 2011). This is because; most of the workers in this sector are foreigners. They are self-driven and work under less supervision. Those who oppose the government move to abolish this visa argue that the government has scrapped the wrong visa. The potential effects of the abolition of this visa are that the cost of operation will have to increase the number of workers in this sector will decrease. The level of efficiency will also be lowered since the experienced and skilled workers will not be accessible. It will take time, for new employees to learn the relevant skills required in this sector and therefore the volume of sales in this sector will go down. The abattoirs are likely to be affected heavily by the abolition of this visa. This would have a negative impact on the marketing margin in the meat industry. Marketing margin can be defined as the difference between the selling price of a product and the buying price by the company. It can also be explained as the difference between the amount of money a company will purchase a commodity and the amount the customer will have to purchase it. In the meat industry, the higher volume of sales is associated with the high skills and experience of the workers. The cost of operation is also low due to the high number of skilled workers in the labor market. However, scrapping the 457 visa scheme will lead to a reduced number of skilled personnel in the sector. As a result, the cost of operation will have to increase; this is because of the high demand for workers bearing in mind that labor demand is a derived demand in that it increases with increase in wages. In the short run, few workers will have relevant working experience and skills. This implies that the technical know-how will be low and thus the level of productivity will go down. The firms will, therefore, have lower revenue collected compared to the past. The firm must, therefore, ensure that it operates on a level of profit maximization. The firm, therefore, will opt to supply a level of output where its marginal cost is equivalent to its marginal revenue (Dufwenberg, 2011). In case the marginal cost is greater than the marginal revenue, then the firm is generating profit and operating on a loss if the marginal revenue is below the marginal cost. In the process of operation, the abattoirs must have a fixed cost of operation. This fixed cost includes; purchasing of the abattoir space, equipment, and wages among other crucial expenditures. It is therefore important to evaluate the following for decision-making in the short run; the abattoir’s average total curve should lie below its marginal revenue curve for it to generate profit, otherwise, it would be operating at a loss. In case it operates on a loss, it implies that the abattoir will shut down. However, the abattoir will not be shut in case the average variable cost is less than the marginal revenue. In such a situation where marginal revenue is above the average cost, the abattoir is in a position to cover both the fixed and the variable costs. Figure 1 In figure a, the market price is marked as P1 and the quantity at which the market is maximized is marked as Q1. At Q1 average total cost (ATC) is viewed to be above the marginal revenue (MR) curve (the flat dotted line denoting the P1. It is clear that the ATC is below the MR and thus the abattoir is in a position to meet its variable costs. The firm makes loses denoted by a b c d. It will however not make shut down since it is able to meet the variable cost. In figure b, on the other side, the scenario is different where ATC and the average variable curve (AVC) are above the MR which denoted as P2. The losses are denoted as a b e d. it will have to shut down in the short run since it is not in a position to cater for the variable cost (Mitchell, 2008). The figure illustrates that the market margin will have to be affected in the short run by an increased cost on the abattoirs. Q 3 In free markets, the forces of demand and supply will determine the market price at equilibrium. However, there are cases where the government institute laws that regulate prices. This is known as a price control. The government will, therefore, advocate for price ceiling and price floors. A price ceiling is set to ensure that prices do not go beyond a given level. When it is set below the equilibrium prices then the quantity demanded will have to exceed the quantity supplied. This will result in an excess shortage or excess demand. On the other hand, price floors are set to ensure that the prices of a commodity do not go below a given level. In case it is set above the equilibrium price, then the quantity supplied will have to exceed the quantity demanded. As a result, surpluses or excess supply is created. Farmers are the most victims of price changes. They may be affected by seasonality and unstable market conditions. Therefore the government comes in in order to assist the farmers. The government institutes a policy of price floor in the agricultural markets (Reynoso, et al. 2011). The government then restricts prices below the set price. It should be noted that price floors can never be set below the equilibrium prices, this is because there is no factor that would hinder the prices from rising to the equilibrium level and therefore, it would serve no purpose. by setting the price floor, the surplus is created. The figure below indicates a price floor in the wheat market Figure 2: Price floors for wheat Assume that the government has set the prices of wheat at the point PF. A point which is above the equilibrium prices denoted as PE. From the point PF it is clear from the demand curve that the amount of wheat that the consumer is will and able to buy is W1 bushels. On the other side, reading from the supply curve, it is clear that the seller is able to willing to sell W2 bushels of wheat at the same price of PF. (Brown, 2009). Due to the price restriction by the government the prices do not fall to PE. This therefore creates surplus bushels of wheat which is equivalent to W2 ­-W1. The main reason as to why most of the government has endorsed price floors is that there has been a dramatic change in farming in the last century. This has been brought about by improvement in the level of technology in terms of, pesticides, herbicides, equipment and new varieties of crops which are resistant to diseases, harsh weather conditions, and unpredictable weather patterns. This has generally increased the output level of crops per acre. Due to technological improvement, the supply curve will have to shift to the right. A positive shift of the supply curve will lead to a reduced price of food (Dufwenberg, et al. 2007). The farmers have also celebrated the move by the government to maintain a price floor. Due to an increase in the population the demand curve has also increased. The demand has also increased due to a rise in the level of income. However, as the level of income increases, people will not spend an equal amount of money on food. The level of expenditure will increase at a decreasing rate. This is because as the level of income increases individuals are encouraged to save more for investment and consume less. It is also notable that, as demand for food increases it is not as greater as that of the supply. This can be seen in figure 3 Figure 3: supply shifts and demand shifts for agricultural products In the diagram above it can be noted that the supply curve has shown a further positive from S1 to S2, compared to the shift in demand D1 to D2. Following the shifts the equilibrium quantity will have to rise from Q1 to Q2 and prices will have to fall from P1 to P2. In ensuring that the government is able to control the pressure exerted by the surplus created in the agricultural market it ensures that it buys the excess wheat in the market ensuring that the market pressure on prices is reduced. This means that the government has to buy the W2 ¬-W1 bushels of wheat and it will retain W1 in the market. The W1 bushels of wheat will be available for private consumers to purchase in the market. The government will, therefore, store the surplus; it will then look for the best ways to utilize it like feeding the poor donating to the developing countries and exportation (Baye, & Beil, 2006). A price floor is very important when it comes to farming. This is because it helps in boosting and stabilizing farm incomes. However, the consumers will be forced to pay more for food crops that they would have paid in case the price floor was no imposed. The government, on the other hand, will be made to finance the program heavily. The program is also helpful in that it helps the small farmers. This ensures that they are able to acquire subsidized commodities and a readily available market for their commodities. The farmers are also motivated in their farming activity. This ensures that the losses are minimized and thus motivated to work and produce more agricultural products. The government is also in a position to identify major challenges faced by the farmers. They are also able to solve market challenges that are likely to arise in the market. The government also can identify new markets for their commodities. The government, therefore, plays a vital role in agricultural markets by setting price floors. The farmers will always be motivated to work and invest in the agricultural sector. The government also ensure that it educate the farmers on modern farming technologies. They ensure that food security is guaranteed. It is therefore important for every government to consider setting the price floors within the economy in support for the farmers (Hertel et al. 2010). References Baye, M. R., & Beil, R. O. (2006). Managerial economics and business strategy (Vol. 5). New York, NY: McGraw-Hill. Dufwenberg, M., Gneezy, U., Goeree, J. K., & Nagel, R. (2007). Price floors and competition. Economic Theory, 33(1), 211. Fell, H., Burtraw, D., Morgenstern, R. D., & Palmer, K. L. (2012). Soft and hard price collars in a cap-and-trade system: A comparative analysis. Journal of Environmental Economics and Management, 64(2), 183-198. Fell, H., Burtraw, D., Morgenstern, R. D., & Palmer, K. L. (2012). Soft and hard price collars in a cap-and-trade system: A comparative analysis. Journal of Environmental Economics and Management, 64(2), 183-198. Hertel, T. W., Martin, W., & Leister, A. M. (2010). Potential implications of a Special Safeguard Mechanism in the World Trade Organization: the case of wheat. the world bank economic review, 24(2), 330-359. Johnstone, S., & Mazo, J. (2011). Global warming and the Arab Spring. Survival, 53(2), 11-17. Liefert, W., Liefert, O., Vocke, G., & Allen, E. (2010). Former Soviet Union region to play larger role in meeting world wheat needs. Amber Waves, 8(2), 12-19. Mitchell, D. (2008). A note on rising food prices (Vol. 4682). Washington, DC: World Bank. Philibert, C. (2008). Price caps and price floors in climate policy. IEA Information Paper. Reynoso, M. M., Ramirez, M. L., Torres, A. M., & Chulze, S. N. (2011). Trichothecene genotypes and chemotypes in Fusarium graminearum strains isolated from wheat in Argentina. International journal of food microbiology, 145(2), 444-448.Dufwenberg, M., Gneezy, U., Goeree, J. K., & Nagel, R. (2007). Price floors and competition. Economic Theory, 33(1), 211. Wood, P. J., & Jotzo, F. (2011). Price floors for emissions trading. Energy Policy, 39(3), 1746-1753. Wood, P. J., & Jotzo, F. (2011). Price floors for emissions trading. Energy Policy, 39(3), 1746-1753. Read More