ECON 1012 UA Supply in Perfectly Competitive Markets Analysis

Topic/s of Primary Focus: Supply in Perfectly Competitive Markets

Demand in Perfectly Competitive Markets Demand and Supply – An Equilibrium Analysis (May also include content from previous topics.)

Read the following ABC News article ‘Avocados are dropping in price — great news for some, lousy for others’ (15 Jun 2021) https://www.abc.net.au/news/rural/2021-06-15/huge-avocado-supply-means-better- prices-for-consumers/100208446

A recent drop in avocado prices may help relieve some of the guilt you feel about splurging on smashed avo on toast at a Sunday brunch when you ought to be saving money.

Peak industry body Avocados Australia’s online retail pricing report has listed the price of an avocado at about $1 each in major supermarket chains across the country.

Chief executive John Tyas said there had been a significant increase in avocado production and supply, pushing prices down.

“Compared with last year, we’re going to [see] … 65 per cent more Australian avocados harvested this year,” he said.

While that was great news for consumers, it could mean problems for growers. Tim Keogh, owner of MMM Mangoes and Avocado’s near Rockhampton in Central Queensland, said the increase in supply would hurt growers.

“It’s pretty tough at the moment in terms of price, just because of a huge supply that’s come into the market,” he said.

“This season we’ve probably had the biggest crop we’ve ever had within our trees and I’m sure that’s right across the board.

“Everyone’s having a big season.”

Mr Tyas said demand for avocados had not quite matched up with the sheer volume of product available this year.

There were, he said, a few factors at play leading to reduced levels of demand:

• The pandemic had led to cafes and restaurants within the major cities periodically going into lockdown
• More people were choosing to eat at home
• There was generally a natural dip in the numbers of avocados consumed duringcooler months

“Supply is definitely exceeding demand at the moment,” Mr Tyas said.

“A lot of growers are doing it pretty tough at the moment — the prices have come back, they’re very marginal.”

But, he said, it was not all bad news for growers.

“There’s definitely a lot of pain for individual businesses but, as an industry as a whole, there are some benefits from the current situation as well,” he said.

“With the prices where they are at the moment, it makes us very competitive on a price basis in export markets.

“So, we’re seeing a real increase in volumes that are going offshore.”

Mr Keogh said growers would need the support of Australian consumers as more and more trees came online.

“It’s probably time for the consumer to get on board and multi-buy while they’re cheap and make the most of it,” he said.

“I think it’s going to be challenging in years to come with the larger supply coming through and that’s going to increase as the years go on.”

Despite the issues with demand, he said, it was clear consumers were still passionate about avocados.

“Our consumption, I believe, is still going up and I think consumption still around the world is increasing,” Mr Keogh said.

“I think there are plenty of mouths to put them in.”

Task:

Utilise the model of demand and supply to analyse the market for avocados in Australia at the time of the article. Clearly explain the impacts on demand and on supply, as well as the resulting impacts on the outcomes of price and quantity at the time of the article. Also provide a prediction and explanation of how the outcomes may change in the long run.

Ensure that you use diagrams where relevant to support your answer, and make sure to use key terminology and course concepts where appropriate.