ECN120 Economics

Question:

Discuss the Economics. The industry’s revenue was expected to exceed fifty percent by the manufacturers.

Answer:

A) The Law of Demand

1) Look for a news article about how demand has changed.

Use the Internet, magazines, or newspaper.

2) Headline of article: Australian sugar supply chains shake-up due to rising sugar demand

2) Write a summary of the article in two paragraphs.

These are your options:

a) Summarize and summarize the article

The article’s central idea is about how Australian supply of chai was affected by the surge in sugar demand.

The article claims that Australian sugar supply is about to be shaken up by the Wilmar international (giant miller), which announced it would stop exporting through Queensland Sugar Limited.

The Wilmar International will cut all ties with Queensland Sugar after the 2016 harvest season (AFN Staff-Writers, 2014.).

The giant would set up an export channel for the 2017 harvest season.

The giant claims that Queensland sugar used to control Australian sugar exports.

In the beginning, all sugar had to go to Queensland sugar.

This meant that there was only one market.

Despite the deregulation of 2006, all Australians still went through Queensland.

But, they believe that this unidirectional channel will change in 2017.

According to the article Wilmar was creating an opportunity to grow revenue by establishing its own export channel.

This could be crucial for the company’s success.

Export markets were a key focus for sugar producers as they saw slower annual growth of just 1.10% in sugar manufacturing industry over 5 years. Meanwhile, international markets were becoming more important for businesses to grow their revenue.

In 2013, the manufacturers predicted that exports would account for over half of industry revenue. This is an indication of how crucial global markets are for sugar industry.

It was shown that Wilmar’s export channel would give it greater control over exports to foreign markets, which will contribute to the strong forecast for revenue growth over the next five year.

The plans of Wilmar were not well received by farmers, since the Queensland Sugar export channel had impeded price competition in the sugar export market.

Farmers were concerned that the new channel would lead to a price war on sugar exports, as there was a lot of cane farmers involved (more than 2,500).

The farmers had no power to negotiate directly with the giant sugar manufacturers. They also had to contend with unpredictable weather trends and volatile farmgate price fluctuations resulting from exposure to downstream export markets.

Farmers believed that farmers would be under pressure from the price of the export market, which would reduce their revenue and impact their profitability.

b. Identify the demands of the article.

The sugar and sugarcane by products

c. Identify whether the demand has increased/ decreased.

The demand has risen

d. Describe the reason why demand has changed this way.

The sugar cane farmers were even better off due to rising demand for sugar-by-products.

The rising global concern regarding the sustainability of oil, which drove biofuels’ demand higher, was partly to blame.

As a result, demand has been rising for the sugar cane by-product used in ethanol production.

The technology was rapidly improving and being widely adopted, and the demand for sugarcane was projected to grow.

This demand would compensate for the negative price effects caused by second export channel creation.

Over the next five year, global sugar consumption was expected to grow.

The rising westernization of diets and income growth in India and China, as well as the population growth, are expected to drive sugar consumption up.

This would increase sugar cane consumption, which in turn would encourage growth in revenue for growers and higher profit margins.

In 2018-19, sugar cane growers are expected to see an increase in revenue of 3.20% annually over the next five years.

e) Identify whether the product is elastic or inelastic and explain why.

The elastic property of sugar and its sub-products is the product.

This is because a small increase in the quantity of sugar required triggers a corresponding change in price. Farmers are concerned about price competition leading to lower revenues and thus less profitability.

4) Draw the demand schedule graph of the product. The graph should show how the market has changed.

As well as labels, include a supply line (SQ, QD, QS QS P, etc.).

5) Equilibrium: Supply and Demand

a) Price increase or decrease

Did the quantity of goods increase or decrease?

As you can see, the price went up from P1 and P2 in the above diagram. The demand for the product shifted from D1 upwards to D2.

As can be seen, the amount demanded increased from Qd1 and Qd2 as illustrated above.

B) The Law of Supply

1) Look for a news article about how the supply might have changed.

Use the Internet, magazines, or newspaper.

2) Headline of article: Australia’s cane farmers are getting sweet news from the rise in global sugar prices

3) Write a summary of the article in two paragraphs

a) Summarize and summarize the article

The article’s main theme revolves around the positive news for Australian cane growers as global sugar prices increased in 2016.

The hugest price rise in 30 years was caused by a shortage of raw cane sugar.

Australia had a surplus of sugar and sugarcane growers are optimistic they will be able to regain the ground lost in 2015.

On February 26, 2016, sugar prices in Australia were closing at 14USc/lb, up 1.30 Cents.

This is the highest percentage increase in twenty eight years.

This sudden change surprised the Australian market as speculative interest was still high at that point.

The global supply changed from surplus to shortage for the first time in 5 years. This led to the large rally.

The conditions in India, Thailand had been dry.

The International Sugar Organization had to reduce its global production estimates due to losses in India and Thailand. It was unable to catch the market in a very short time.

Sugar remains a volatile product with frequent ups and downs.

According to forecasts, sugar demand will outstrip supply in the next two years, this bounce could be one that is associated with an increase of air time.

A further rise in sugar prices was expected in the near term, indicating a return of prices above US15c per pound.

This was good news, for Australia’s 4,000 can growers.

It was expected to provide a boost to the end of 2015 pricing pool.

b. Identify what sugar is being provided in the article.

c. Identify whether there has been an increase or decrease in supply

d. Explain why the supply has changed.

Give at least one reason.

It was described as sugar being back in the town.

It was a temporary setback for cane growers who were anxiously watching the loss that took place in January 2016 2016.

It was a huge boost in confidence.

Queensland Sugar Limited sold over three million tonnes per year to foreign countries. This demonstrates that Australia’s sugar industry is still firmly geared towards the export market.

The best news was that local customers who love a spoonful of sugar were protected by daily price movements due to long-standing contracts.

The rally was likely an attempt by growers to make up ground after 2015’s difficult season. There was speculation that prices might have fallen below US10 a pound in 2015. (Zonca, 2016).

It was certainly the right decision.

Since then, the break-even price had risen to more than US14c per pound, it was never the price that growers desired.

The price could rise to US16 in order to offer certain opportunities to growers who have to pay high electricity bills for irrigation reliance.

A rise in sugar prices could help offset such high bills, giving growers more confidence for promising 2016.

The price was moving forward, which would be exciting for growers and give them the confidence to recover the ground lost in the last 12-18 month.

e. Identify whether the product has an elastic or inelastic market

Sugar would have a flexible demand.

Changes in the price of sugar lead to an increase in the quantity demand.

A positive price change leads to a positive supply change. Cane growers sell more sugar raw products, so sugar has an elastic supply.

4) Make a supply list for the product. This will show how supply has changed.

Add as many labels possible.

Add a demand line to show whether the product will be elastic or rigid for consumers.

Explain this in your analysis.

5) Equilibrium: Supply and Demand

a) Price increase or decrease

Did the quantity of goods increase or decrease?

As the demand was not affected, the price dropped from P1 (shown above) while the amount of product supplied rose from Q1 (shown above).

C) Price Ceiling or Floor

1) Search for a news story that discusses a price floor or a price ceiling.

Use the newspaper or Internet to find out more.

(Think about using an article discussing minimum wage, but not the one I gave to you.

2) Headline: Minimum Wages and the Path to Poverty

3) Write a paragraph about the article.

These are your options:

a) Summarize and summarize the article

According to the article, minimum wage is a factor in poverty.

The article is based upon a review that focused on minimum wages.

This review acknowledged that the minimum wage is creating the poverty trap it sought to end by keeping people out of the labour market.

The Productivity Commission in Australia wanted to know if minimum wage causes unemployment.

The article commission was asked to approve or deny that minimum wage had an impact on employment.

The question here is whether the imposing of price floors would reduce labor supply.

Workers will not be able to find work if they are paid a minimum wage that is higher than market prices.

The minimum wage can be increased from the current $16.87/hour to $34.

Employers may have to cut back on their workforces or hire only those who are more productive than they currently pay.

The minimum wage will increase by either quadrupling or tripling to $168.7/hour.

This will result in people losing their jobs.

Labor markets are governed by impersonal and amoral economic forces, demand and supply.

The Fair Work Commission believes that minimal wage increases have a negligible, or even negative, effect on employment (Berg (2015)).

As the minimum wage rises towards zero, so will the unemployment cost.

Employers prefer young workers from more wealthy households to those who have less privileges.

A minimum wage reduces job growth and is a major burden on young workers in low-wage sectors.

The minimum wage is therefore a poor social policy that helps the poor.

Low-skill workers are most affected by minimum wage.

The minimum wage discourages the creation of human capital.

It can cause price rises in commodities, which are frequently consumed by low-income households.

b. Identify who should be benefited from price control

Young workers and low-skilled workers as well as households that are poor or near-poor will be able to help.

c. Identify the person that is hurt by the price control

Young workers, low-skilled employees; poor- or near-poor households

d. Discuss whether or not price control is a good idea.

It is bad to have price floor controls as it causes unemployment and thus creates the poverty trap it is meant to solve.

This hurts the people it should have helped.

It seems that minimum wage through price ceiling does very little to increase income for poor and near-poor families.

This is more likely than not to have adverse effects on these families.

If young workers are unable or unwilling to get jobs at minimum wage, they will not be eligible for the dole-recipe.

By setting a minimum wage at the price floor, it creates the poverty trap that is supposed to be alleviated by preventing the most vulnerable from gaining entry to the labor market.

4) Draw a graph showing the price floor.

All labels should be included, including the dead weight loss.

5) Draw a second diagram showing what could happen in future markets to lessen the effectiveness price control.

Include a brief analysis.

(Think of the laws governing supply and demand.

The economic forces that drive demand and supply can reduce the effectiveness of the price ceiling.

The price floor does not guarantee minimum wages, so employers and workers have the option to trade at higher prices.

Therefore, the price floor that sets a lower minimum wage will work.

It is evident that employers and workers could choose to work at or above the price level, and thus the price ceiling will not be effective.

References

Australian sugar supply chain shaken up as sugar demand grows.

Berg, C., 27 Jan 2015, 08:14 AM

Minimum wages and the way to poverty

Zonca C. (24/02/2016 at 11:34).

Global sugar price rises: This is great news for Australia’s sugar growers.

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