Micro Economic Analysis. The Concept of demand, Supply and Price

1.        Choose a topic from Micro economics that matters to you and find a recent news article covering that topic

I have selected the following topic “With costly bananas, apples and grapes, orange becomes favourite fruit this season” was published in The Economic Times on 6th May 2014. The concept of demand and supply and price has been discussed very clearly.

2.        Evaluate the article using Economic concepts

According to the President of Orange association of India has been stated about the increasing demand of Oranges and production of Oranges in Nagpur city of India. He has been discussed the main reason of high demand of Oranges in south part of India that is high prices of grapes and apples. In Kerala due to heavy rain in June and July month the banana’s crop has been affected and due to shortage of banana and due to high demand the prices increased. There is a significant raise in the price which is noted as 20 Rupees per kg. He has been discussed that main sources of Oranges like Nagpur and Amravati and the production of Oranges in both cities fulfil the demand of oranges in Chennai, Kerala and Bangalore. According to the AB vegetable and Fruits owner Mr. Liaqat Ali in Chennai that although due to high supply of Oranges the price should be down, but due to high price in transportation, there will be no lower prices in the orange and it will be available in the market on previous year price that was Rs 35 per kg. He has been stated that the price will be changed (rise) because in the month of January and February there will be more demand of orange and according to supply and demand rule the prices will go up, so it is early to predict the demand and supply. Due to high quality of Kerala oranges in January and February the demand will be increased and it will increase the price up to Rs. 40 per kg and also will increase the supply. Apple quality is not good that’s why traders import the apple due to high demand of quality apple from other countries and the prices will increase. Nazar Muhammad a wholesaler has been stated that as some days ago the orange was available at the price of Rs. 14 to 15 per kg, and due to increase in demand it is now available at Rs. 18 to 22 per kg, the harvesting of orange is in process, in January as the new crop will reach in the market the demand will remain same but the supply will be increased and the prices will go down again. As there is a clear cut picture of demand and supply, and price. With the new crop the supply of orange increase, due to shortage of bananas the prices went up because due to high demand and low supply and shortage of bananas. All the concepts of demand, supply and their affect on price have been covered. Mr. Nazar Muhammad fruit wholesaler of Kalamna market in Maharashtra stated that the wholesale price orange some days ago was round about Rs 14 to 15 per kg, but now there is an increase in the price which is Rs. 18 to 22 per kg in wholesale market. And the prices will again come down due to high supply and low demand in January when new crop will reach in market as harvesting is in process.

Explain how you can present the issue in terms of economic concepts and theories you have learnt in class

According to the article published in “The Economic Times” that the president of Orange Association of India Mr. Amol M. Totey has been stated that the orange production recorded in this year is the double in Nagpur city. And the demand of Oranges in the southern of the country has been increased significantly this year.

Rise in Price Rs. 20/ kg due to high demand of banana.

Due to high supply of Oranges/ commodities the price should be low (High demand high price, high supply lower price). The price of oranges was down due to high supply but due to high transportation charges, Oranges will be available in the market at previous year rate.

There is a direct relationship between demand and supply, more demand always raise the price if the supply is low.

As in January and February there will be an increase in the demand of orange and its prices will be increased that will be Rs. 40 per kg, it means that due to high demand the supply will be increase and there will be increase in the price of orange.

In Kochi per day market gets about 100 tonne. Increase in the demand of quality apple will increase the prices and will increase the supply.

When demand remains same and supply increased due to new crop then the prices come down due to high supply. High supply will lower down the prices due to short demand.

Explain what actions you would recommend to the key players and/or policy holders.

This sudden increase in the Orange demand from south part of India is due to the high pricing of apples and grapes in the southern part of India. People living in Vizag, Kerala, Chennai, Bangalore and Hyderabad has demanded for more Oranges. Due to heavy rain in month of June and July and other climate changes has significant effect on Banana’s crop and damaged the yield of bananas that also cause in raising the banana price due to its shortage. The banana price that was available in the local market at price of Rs. 30 to 40 per kg in the past years are now selling at Rs. 50 to 60 per kg. In the southern markets the Oranges are now available and usually Orange availability in the southern market was started in the start of October till November and remained till summer season. Although the supply of the Oranges is so high this year but it will not lower the price due to high price of diesel and in this way the transportation charges will be high and the Orange will be available in the market as per last year price that was Rs. 35 per kg. In January and February the Orange demand will go up and in this way it will affect the price. There is daily supply is about 150 tonne in the main market of Chennai, and as the production of the Orange is clear evident in Kerala and consequently supply will be increased in coming weeks. Due to high quality of Orange there will be increase in its demand and the price of orange will be increased about Rs. 40 per kg. And the supply will be increased because the production is also increased. Traders import the high quality of apple from other countries and the prices of apple will be doubled due to high demand of high quality apples.

Explain how the above analysis supports your conclusion (1 to 2 paragraphs)

3.        You may provide graphs/charts/diagrams where necessary to enhance your presentation style.

3.1      Supply Curve

Shift in supply curve (Rising Cost)

Source: Author

Supply curve is always upward because according to supply law that high prices, more quantity of commodities is supplied (high price more supply), that’s why the supply curve goes upward. So when the price of orange will be high the supply will be increased and the supply curve will be gone up.

Shift in supply curve (Lower cost)

Source: Author

3.2      Demand Curve

Increase in demand

Source: Author

According to the law of demand that when price of commodities higher that time quantity of demanded product is less, so the curve of demand will be downward sloping curve. Due to high price the demand curve will be downward. And supply will be upward.

Decrease in Demand

Source: Author

3.3      Equilibrium

An increase in the supply S, with constant demand D will be decrease and equilibrium price P* and increase equilibrium quantity Q*.

Similarly decrease in supply S, with constant demand D will increase equilibrium price P* and decrease with constant quantity Q*

Source: Author

When the demand and supply becomes equal that state is called equilibrium point, the point where the demand and supply of commodities meet together. If the price is above the equilibrium point it means that commodities are in surplus and if the real price is below the equilibrium point it means that the shortage of commodities.

3.4      Shifting the supply Curve

Source: Author

With the change in economy there is always a change in supply curve either left or right. A change in price can be occur due to change in supply of commodities such as change in price of oil due to new technology or discovery of new well. Change in supply due to new crop may shift he supply curve.

3.5      Shifting the Demand Curve

Source: Author

The demand curve can be shifted right or left due to change in the income of consumers, for example change in interest rate, more money, decrease in income tax, high wages, more job opportunities can bring change in buying power and thus a change will occur in the demand. Low buying power will decrease the demand and more buying power will increase the demand.

4.        You need to attach a copy of the article with your assignment.

Published by MALI

Writer is post-graduated in Computer science, Business Administration, Marketing and Innovation. He has 10 years of business academic research writing experience.

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