ECN120 Economics

Table of Contents

Question:

Talk about Economics

Answer:

A) The Law of Demand

1) Find a news article discussing how the demand has changed.

Use the newspaper, Internet or magazines.

2) Headline: Australian sugar supply chain shaken up as sugar demand rises

2) Write a two-paragraph summary.

The following should be included:

a) Summarize article

The article’s main theme is how Australian supply chai has been affected by rising sugar demand.

According to the articles, the Australian sugar supply chain is in a state of flux after the Wilmar International (giant Miller) announced that it would cease exporting via Queensland Sugar Limited.

At the close of the 2016 harvest season, Wilmar International would cut all ties to Queensland Sugar (AFN-Staff Writers, 2014).

For the 2017 harvest season, the giant would establish an individual export channel.

According to the giant, Queensland sugar has controlled Australian sugar exports in the past.

All sugar must be sold to Queensland sugar at first.

This meant there was only one way to get sugar to the market.

Despite deregulation in 2006, all Australians still used Queensland as their main channel.

The article stated that the one-sided channel would change in 2017, however.

According to the article, Wilmar’s creation of its own export channel was in essence creating a chance for revenue growth.

This could have been crucial to the company’s growth.

Sugar manufacturers turned to export markets to grow their business. This was despite the fact that sugar industry’s annualized growth rate of just 1.10% was predicted for the next 5 years. Businesses were increasingly focusing on international markets for revenue growth.

Exports were expected to account for more than half of the industry’s revenue in 2013-14, which is a sign of how important global markets are to the sugar industry.

The company’s own export channel, Wilmar, would allow it to have greater control over its exports to international markets. This will result in strong revenue growth forecasts for the next five years.

Farmers were less enthusiastic about the Wilmar’s plans, as Queensland Sugar has prevented them from supplying sugar at a competitive price.

The new channel would have a negative impact on sugar export prices as more than 2,500 farmers were expected to plant the cane.

Farmers had little power to negotiate with large sugar producers and were forced to deal with volatile weather trends and volatile farmgate prices due to exposure to the downstream export market.

The farmers believed that price competition in the export market would result in farmers losing revenue and affecting their profitability.

b) Identify the requirements of the article.

Products made from sugar and sugarcane

c) Determine whether there has been an increase or decrease in demand.

The demand for these products has increased.

d) Describe why the demand has changed in this manner.

Sugar by-products were also in demand, which made sugarcane farmers even more powerful.

The rise in global concern about the sustainability of oil led to a higher demand for biofuels.

The demand for sugar cane, a by-product of ethanol production, has been increasing.

As technology became more advanced and widely accepted, sugar cane demand was expected to rise.

This would offset the negative price effects of second export channels.

Global sugar consumption is expected to rise over the next five years.

Sugar consumption was expected to rise due to rising westernization and income growth in countries like India and China.

This would stimulate sugar cane demand, thereby promoting growth in revenue and higher margins of profit for growers.

For the sugar cane industry, an annualized revenue growth rate of 3.20% was predicted for the next 5 years. This will lead to a healthy 1.20 Billion dollars in 2018-19.

e) Identify the elastic and inelastic demands for your product and explain why.

Sugar and its byproducts have an elastic.

Because a small change of quantity required triggered an corresponding increase in price, as shown in the summary. Farmers are concerned that price competition could lead to lower revenue and therefore less profitability.

4) Draw a demand graph for the product. On the graph, show how the demand has changed.

Labels and a supply line are also needed (S,Q, QD QS S, etc.).

5) Equilibrium (Supply & Demand)

a) Was the price of goods increasing or decreasing?

Is it increasing or decreasing in quantity?

As shown in the diagram above, the price rose from P1 towards P2, as the demand moved from D1 toward D2.

As shown in the above diagram, the quantity required increased from Qd1 to Qd2.

B) The Law of Supply

1) Find a news article discussing how supply has changed in any way.

Use the newspaper, Internet or magazines.

2) Headline: Australia’s sugar growers are in for some sweet news as the global sugar price rises.

2) Write a two-paragraph summary about the article

a) Summarize article

This article focuses on the positive news for growers of cane from Australia, as global sugar prices rose in 2016.

The product saw its largest rally in nearly 30 years due to a shortage of raw sugar.

Australia’s sugar supply was restored and sugar cane growers were optimistic that they will regain the ground they lost in 2015.

On February 16, 2016, the sugar prices in Australia closed at 14USc per pound, an increase of 1.30 cents.

This was the largest percentage increase in 28 years.

The Australian market was shocked by this change, as speculative speculation remained frenetic at that time.

Global supply turned from surplus to deficit for first time in five years, resulting in the large rally.

Conditions in India and Thailand were dry.

Due to the loss of production in India, Thailand and other countries, the International Sugar Organization reduced its global production estimates. This resulted in the International Sugar Organization catching the market very quickly.

Sugar is a volatile product, which fluctuates frequently.

This bounce could be explained by an increase in air time. Sugar demand is expected to outstrip supply over the next 2 years.

In the short-term, prices rose further and were forecast to return to US15 cents per kilogram.

This was good news to Australia’s can-growers of 4,000.

It was expected that it would add a positive kicker to the 2015 pricing pool.

b) Identify the Sugar in the Article

c) Determine whether the supply has increased/ decreased

d) Describe why the supply has changed in this manner.

At least one reason should be given.

According to one report, the situation was like sugar being back in town.

It was a small victory for cane growers, who had been watching with nervousness the losses that occurred in January 2016.

It was a significant boost in confidence.

With Queensland Sugar Limited selling over three million tonnes of sugar per year in overseas markets, the Australian sugar industry was firmly focused on exports.

It was also great to see that local sugar-lovers, who enjoy a good spoonful of sugar, were largely protected from the daily price fluctuations by long-standing contracts.

Growers wanted to make up ground lost in 2015, so they supplied more. This was likely a correction on the difficult prices of 2015 season (Zonca 2016, 2016).

It was the right choice.

The price was not the one that growers wanted to pay since break-even prices were higher than US14 cents per pound.

To make it possible for growers to take advantage of certain opportunities, the price had to rise to US16. This would allow them to avoid paying high electricity bills because they rely on irrigation to provide more.

A rise in sugar prices would help to balance such bills and give growers hope for a promising 2016.

The price was rising and this would encourage growers to pick up any ground that had been lost over the past 12-18 months.

e) Determine if the product will have elastic or inelastic demands

Sugar would have an elastic market.

An increase in sugar price leads to an increase in the quantity of sugar in the opposite direction.

Positive price changes lead to an increase in sugar supply by cane growers who sell more raw products. Sugar has an elastic supply.

4) Create a supply plan for the product. Identify how supply has changed.

As many labels as you can.

A demand line should be included that indicates whether the product is elastic or inelastic for consumers.

This should be explained in your analysis.

5) Equilibrium (Supply & Demand)

a) Was the price of goods increasing or decreasing?

Is it increasing or decreasing in quantity?

The demand remained fixed and the price fell from P1 toP2, while the quantity of supply increased from Q1-Q2 as shown.

C) Price Ceiling/Price Floor

1) Find a news article discussing a price ceiling, or a floor.

You can use the newspaper, internet, or magazines.

You might also consider using an article about minimum wage that is not the one I gave.

2) Headline of the Article: Minimum Wages and The Path to Poverty

2) Write a two-paragraph summary of the article.

The following should be included:

a) Summarize article

According to the article, poverty is caused by a minimum wage.

This article was based on a review which focused on minimum wage.

Reviewers acknowledge that minimum wage keeps people out of the labor market and creates the poverty trap it was meant to eliminate.

The Productivity Commission in Australia asked the overarching question: Does minimum wage trigger unemployment?

The article commission wanted to determine whether minimum wage has an effect on employment.

This question is about whether price floors reduce labor supply.

True, workers will be locked out of their jobs if the minimum wage is not sufficiently high above market prices.

For example, the minimum wage could be doubled from $16.87 an hour to $34.

Employers will have to reduce their workforce and only hire those whose productivity could justify the additional cost.

Minimum wage will rise to $168.7 an hour if it is quadrupled or tripled.

There will be job losses.

Labor markets are government-controlled by the impersonal and amoral economic forces that drive demand and supply.

According to the Fair Work Commission, modest adjustments in minimum wages have little or no impact on employment (Berg 2015).

The unemployment cost will approach zero as minimum wage increases towards zero.

Employers will prefer to hire young workers from households with more privileges than those with lower incomes.

The minimum wage slows down job growth over time. This burden falls mainly on young workers and low-wage industries.

Therefore, minimum wages are a relatively ineffective social policy to help the poor.

The minimum wage has misemployment consequences that are disproportionately felt by low-skilled workers.

Minimum wage discourages human capital formation.

This can lead to price increases on commodities that are often consumed by low income households.

b) Identify the person who should benefit from price control

Low-skilled and young workers, as well as poor and near-poor households.

c) Identify the person who is being hurt by price control

Young workers, low-skilled workers, poor- and near-poor families

d) Discuss surpluses or shortages, and explain whether you think price control is a good idea.

Price floor controls are a bad idea as they trigger unemployment and create the poverty trap that it is supposed to fix.

It hurts people it was supposed to help.

The minimum wage through the price floor seems to have very little effect on increasing incomes of poor and close-to-poor households.

These families are more likely to suffer from its negative effects.

Young workers who are unable to find jobs at minimum wage will be denied dole-recipe for poverty.

The poverty trap created by minimum wage through price ceiling is what it is meant to alleviate. It prevents the most vulnerable people from accessing the labor market.

4) Draw the graph showing the floor price.

All labels are included, even the weight loss.

5) Draw another graph that explains what might happen in the future in order to decrease the effectiveness of price control, if it remains unchanged.

Include a 1-paragraph analysis.

(Think of the laws of supply-demand).

The price floor’s effectiveness can be affected by the economic forces of supply and demand.

A price floor is a minimum wage that employers and workers can agree to.

The price floor will therefore set a lower wage.

The graph above shows that both employers and workers may decide to work above the floor price and will be seeking a new equilibrium at the floor price, making the price floor ineffective.

Refer to

As sugar demand rises, Australian sugar supply chain shakes up.

Berg, C. (27 January 2015, 8:14am).

The path to poverty and minimum wages.

Zonca C., 24 February 2016, 11:34 AM

As global sugar prices rise, this is good news for Australia’s cane farmers.

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