econ1000 student essay exemplar 1 - olive oil market(1)
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ECON1000 Student Essay (Exemplar 1)
Olive Oil Market Analysis
ECON1000 Assignment – Student Essay (Exemplar 1)
Olive Oil Market Analysis: Lecture Topics L (Demand and Supply), L! (ed and !e"enue), L# (Economic
E$ciency)
C"ntents
1%0 &rticle Summary '
'%0 ntroduction '
%0 &rticle &nalysis '
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%1 Demand and Supply o* Oli"e Oil '
%' rice Elasticity and Total !e"enue o* Oli"e Oil +
% ar-et E$ciency .
#%0 Conclusion.
+%0 !e*erences /
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ECON1000 Student Essay (Exemplar 1)
1#0 Arti$le Summary
Te article, Olive oil prices set to rise sharply after Andalusia drought discusses te expected increasin prices o* oli"e oil due to continuous
drout in Soutern Spain and te 2acteria 3ylella 4astidiosa in ulia,
taly% Te lac- o* rain leads to an estimated #05 crop sortae in Spain,
te 6orld its top producer o* oli"e oil% <ou oter ma7or suppliers
includin 8reece and Tur-ey are not a9ected, te decit in Spanis
production is sinicant as 6ell te demand as increased 2y .05 in te
past t6o decades, it is anticipated tat 6ill not 2e enou supply% &n
increase in price is necessary to clear te sortae and to reac
e;uili2rium% <ile an increase in price mit 2rin 2enets to producers itis arued tat a ood ar"est drop prices ea"ily, on te oter and poor
ar"est increase prices, 2ut tere is less sellin resultin in no=6in
situation *or oli"e oil producers (>uren '01#)%
#0 %ntr"du$ti"n
Tis essay explains te economic teories applied on te oli"e oil mar-et%t discusses te demand and supply *actors tat in?uence 2uyers and
sellers% Te essay explains o6 e;uili2rium in a mar-et is reaced to
eliminate te sortae% t also co"ers te elasticity o* demand and te
relationsip 2et6een te price elasticity o* demand and total re"enue, and
lastly te cane in price e9ects on consumer and producer surplus%
Arti$le Analysis
&emand and Supply "' Olive Oil
Te demand cur"e is a diaram tat indicates te relationsip amon te
price o* a ood and te ;uantity demanded o* tat ood, 6en e"erytin
else remains sta2le (Curtin @ni"ersity '01#)% &s te la6 o* demand a$rms,
6en te price o* a product rises te ;uantity demanded decreases, and
6en te price o* a product *alls, te ;uantity demanded increases(Au22ard et al% '01)% 4or instance, as >uren ('01#) points out
consumers a"e to pay more *or oli"e oil due to te increase in price *rom
'%#0 euros (%#/ &@D) to '%/0 euros (%B0 &@D), tis 6ill result in a
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decrease in ;uantity demanded tat 6ill cause a mo"ement alon te
demand cur"e%
igure 1 A Movement Along the Demand Curve
Te increased price o* oli"e oil *rom %#/ to %B0 causes a mo"ement
alon te demand cur"e *rom point & to point > = a decrease in ;uantity
demanded *rom 0L to '0L%
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ECON1000 Student Essay (Exemplar 1)
On te contrary, te supply cur"e is a diaram tat indicates te
relationsip o* a product and te ;uantity supplied o* tat product, 6en
unpriced "aria2les stay te same% Te la6 o* supply a$rms tat 6en te
price o* a product rises te ;uantity supplied increases, and 6en te
price o* a product *alls, te ;uantity supplied decreases (Curtin @ni"ersity
'01#)% Te article outlines tat poor ar"est is predicted *or tis year
2ecause o* te drout and te 2acteria tat in*ected a lare num2er o*
trees in ulia% Tese *actors cause a sortae in supply 6ic leads to an
increase in price ad7ustin te sortae% n tis case, supply 6ould not
increase due to oter "aria2les tat 6ere not sta2le, tus supply 6ill si*t
to te le*t%
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igure A decrease in olive oil supply
& determinant tat in?uences te supply cur"e to si*t to te le*t is te
expected *uture prices% &s stated in te article, some producers a"e teincenti"e to decrease supply no6 and old some production to sell it later on
6en prices are expected to 2e ier% On te oter and, consumers tend to
2uy more oli"e oil no6 to a"oid payin more in te *uture% Tis si*ts te
demand cur"e *or oli"e oil to te rit in anticipation o* ier prices in te
*uture%
n particular, an increase in price *or oli"e oil causes a decrease in
demands *or te complement ood suc as ra6 "eeta2les% Consumers6ill 2uy *e6er "eeta2les tat are used *or salads si*tin te demand *or
te complement ood to te le*t% Te cane in price, also leads
consumers to 2uy less oli"e oil and coose to 2uy a su2stitute *or it tat is
less costly suc as "eeta2le oil, canola oil or sun?o6er oil%
Te demand *or sun?o6er oil oes up 6ic si*ts te demand cur"e to
te rit 2ecause te price o* oli"e oil increased%
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ECON1000 Student Essay (Exemplar 1)
igure ! Sunower Oil Market
Ao6e"er, o"er recent years, te demand *or oli"e oil increased
considera2ly as it 2ecomes "ery popular *or many nations, especially in
te European @nion reions 6ere oli"e oil is used constantly *or cultural
and reliious reasons (lontos and Du;uenne '01#)%
Oter *actor tat can in?uence te demand cur"e to si*t to te rit is te
demorapic attri2ute suc as ae% 4or elderly consumers, oli"e oil is te
main component on te editerranean diet% asala et al% ('00/) a"e
*ound tat a i consumption o* oli"e oil added in salads could elp
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elderly to maintain teir ealt as it could pre"ent te coronary eart
disease and cancer, also impro"es lone"ity%
& sortae ta-e place 6en te ;uantity demanded is ier tan te
;uantity supplied (Au22ard et al% '01)% &s mentioned in te article, te
demand in oli"e oil increased 2y .05 and te oli"e production is
anticipated to decrease 2y #05F tis 6ill create a sortae in te oli"e oilmar-et% n order to eliminate te sortae and 2rin te mar-et in
e;uili2rium, producers rise te price o* oli"e oil% Tis alteration 6ill
decrease te ;uantity demanded as only some consumers 6ill aree to
2uy te oli"e oil at te increased price, 6ile oters could not
igure Olive Oil Supply Shortage
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ECON1000 Student Essay (Exemplar 1)
& price 2elo6 te e;uili2rium increases ;uantity demanded and decreases
;uantity supplied% &n increase in price decreases te ;uantity demanded
and increases ;uantity supplied 6ic in turn 6ill 2rin te mar-et in
e;uili2rium%
!# *ri$e Elasti$ity and +"tal ,evenue "' Olive Oil
Te price elasticity o* demand is Gte responsi"eness o* te ;uantity
demanded to a cane in price, measured 2y di"idin te percentae
cane in ;uantity demanded o* a product 2y te percentae cane in
productHs priceI (Au22ard et al% '01, B')% Ta-in into consideration tat
oli"e oil is an essential component on editerranean diet, and it is "ery2enec *or elderly its ealt indicates tat consumers its 6illinness to
pay more *or oli"e oil 6ill not cane considera2ly% <ou te price *or
oli"e oil rises te demand 6ill respond 6ea-ly 6ic means tat te ood
as an inelastic demand%
Total re"enue is te amount tat sellers earn *rom 2uyers 6en sellin
teir oods (Curtin @ni"ersity '01#)% * te seller o* oli"e oil increases te
price, its total re"enue 6ill rise 2ecause te demand *or oli"e oil isinelastic% Te ;uantity demanded 6ill drop only 2y small percentae% <ile
a decrease in price 6ill reduce total re"enue as te ;uantity demanded
rises 2y a small percentae%
!e"enue Earned
!e"enue Loss
igure - Olive Oil Elasticity and
evenue
&n increase in price 6en demand is
inelastic increases total re"enue%
& decrease in oli"e oil supply causes
price to rise more tan ;uantity *alls%
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ECON1000 Student Essay (Exemplar 1)
Con"ersely, i* te oli"e oil demand 6as elastic, ten an increase in price
6ould a"e caused ;uantity demanded to *all 2y a ue percentae
resultin in a *all in total re"enue, 2ut a decrease in price 6ould a"e
caused an increase in te ;uantity demanded 2y a lare percentae
resultin in a raise in total re"enue%
!#! Market e.$ien$y
Consumer surplus is te discrepancy amon te maximum price tat a
consumer is 6illin to pay and te real price paid% <ereas producer
surplus is te discrepancy amon te minimum price a rm is 6illin to
accept and te real price recei"ed (Au22ard et al% '01)% 4or instance, tedrout and 2acteria caused a reduction in te production o* oli"es and
less oil 6ill 2e produced, 6ic si*ts te supply cur"e to te le*t, as a
result consumer surplus declines 2y area >, C, D and producer surplus
increases 2y area > and decreases 2y area 4 and 8%
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igure / Olive Oil Market E!ciency
#0 C"n$lusi"ns
Te raised prices predicted *or oli"e oil ma-e consumers 6orse o9 as teir
additional 2enet 6ill 2e reduced 2ecause more money a"e to 2e paid *or
te consumption o* oli"e oil% * 2uyers are not appy 6it te competiti"ee;uili2rium price can as- o"ernment to inter"ene in settin a ceilin price
tat is under te e;uili2rium price 6ic 6ill i"e consumers te
opportunity to 2uy more oli"e oil% Te do6nside o* tis action is tat 6ill
lead to lo6er te economic e$ciency as a sortae may result 6ic in
turn 6ill i"e rise to unautoried arranements suc as a 2lac- mar-et%
On te oter and, economic incenti"es may 2e necessary to 2e pro"ided
*rom o"ernment to compensate and encourae producers *rom tesinicant losses su9ered *or 2ein *orced to 2urn a lare num2er o* trees
to pre"ent oters *rom ettin in*ected 6it 2acteria 3ylella 4astidiosa% 4or
producers it 6ill ta-e loner to repopulate te trees, tere*ore a
o"ernment implication 6ill 2rin 2enets to producers 6ic in turn 6ill
contri2ute to te economic ro6t%
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ECON1000 Student Essay (Exemplar 1)
,e'eren$es
>uren, Stepen% '01#% GOli"e oil prices set to rise sarply a*ter &ndalusia drout%I "he
#uardian, &uust '.% ttp:MM666%teuardian%comM2usinessM'01#MauM'+Moli"e=oil=prices=rise=andalusia=spain=drout=poor= ar"est
Curtin @ni"ersity% '01#% GLecture ': Demand and Supply%I o6eroint lecture notes%
ttps:MMlms%curtin%edu%auM6e2appsMportalM*rameset%7spta2Pta2ProupPidJP#P1QurlJ
5'46e2apps5'42lac -2oard5'4execute5'4launce r54type5DCourse5'.id
5DP.#+P15'.url5D
Curtin @ni"ersity% '01#% GLecture : Elasticity%I o6eroint lecture notes%
ttps:MMlms%curtin%edu%auM6e2appsMportalM*rameset%7spta2Pta2ProupPidJP#P1QurlJ
5'46e2apps5'42lac -2oard5'4execute5'4launce r54type5DCourse5'.id
5DP.#+P15'.url5D
Au22ard, 8lenn !%, &nne % 8arnett, ilip Le6is, and &ntony % OH>rien%'01% Essentials
of Economics% 'nd ed% 4rencs 4orest, N%S%<%: earson &ustralia%
asala, 8io"anna, arco Ceroti, aleria ala, ittorio Rro, aolo ineis, Carlotta
Sacerdote, Caloero Saie"a et al% '00/% G& dietary pattern ric in oli"e oil and ra6
"eeta2les is associated 6it lo6er mortality in talian elderly su27ects%I $ritish %ournal of
&utrition B ('): #0.=#1+% doi:10%101/MS000/11#+0//0#B1% lontos, 8% and % N%
Du;uenne% '01#% G&ssess te impact o* su27ecti"e norms o* consumersH 2ea"ior in te
8ree- oli"e oil mar-et%I %ournal of etailing and Consumer Services '1 ('): 1#=1+/%
doi:10%101.M7%7retconser%'01%0B%00%
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ECON1000 Student Essay (Exemplar 1)
Olive oil prices set to rise sharply after Andalusia drought
Anticipation of poor harvest has already pushed up wholesale price from €2.40 to €2.70 per kg over past few weeks
Olives gathered in a net on a farm in the southern Spanish village of !na"ar. Spain produces #0$ of
the world%s olive oil. &hotograph' (ristina )uicler*A+&*,etty mages
Stephen Burgen in Barcelona
-uesday 2 August 20/4 0/.4 A1S-ast modified on -uesday 2 August 20/40/.#0 A1S-
Hold the bruschetta: olive oil prices are expected to rise sharply after a prolonged drought in the
world's biggest producing region in southernSpain, at the same time as a blight has hit the crop in
Puglia, Italy's main olive-growing area.
While there is still time for rain to save the day in Andalusia, as harvesting takes place from October to
January depending on the olive variety and location, without better weather soon this year's crop ispredicted to be 40% down on the bumper 1.77 million-tonne harvest of 2013-14.
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"Not even the most optimistic are predicting a million tonnes," said David Erice of Spain's Small
Farmers Union. "We're expecting something closer to 2012, when production was around 700,000
tonnes."
Spain produces 50% of the world's olive oil, with 73% of that coming from the province of Andalusia in
the south and 16% from Catalonia in the north-east. In 2013 olive oil exports from Andalusia were
worth €1.5bn (£1.1bn).
The drought isn't the only problem. Bumper harvests leave the trees exhausted, said Erice, and they
produce far fewer olives the following year.
Anticipation of a poor harvest means that in the wholesale market, where it is priced per kg, virgin olive
oil has already risen from €2.40 to €2.70 per kg over the past few weeks, according to Infaoliva, the
Spanish olive oil federation. The drought in 2012 led to a 13% price rise.
Prices are predicted to rise by as much as €0.50c a litre – although extra virgin olive oil retails in
supermarkets at around €3.00 a litre in Spain and is a popular loss leader in supermarket wars, to the
detriment of producers who in recent years have complained that supermarkets have pushed the price
down to below the cost of production. Some analysts predict that supermarkets will absorb any price
hike in order to maintain their competitive edge.
Virgin olive oil futures for September are at their highest level since June 2013, and some suppliers
say that speculators are contributing to the rise in futures prices by capitalising on the uncertainty
caused by the drought. The bets they are making are driving prices higher.
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ECON1000 Student Essay (Exemplar 1)
There are also claims that some producers are withholding stock in anticipation of selling at a higher
price later in the year. However, for all but the biggest producers the olive oil business has become a
no-win proposition. If the harvest is good, the price slumps; a poor harvest means selling much less for
only slightly more.
The oil is exported principally to France, Portugal and Italy. Italy often repackages Spanish oil as
"estate bottled", giving consumers the impression that it is an Italian product.Italy is the second largest
producer after Spain, accounting for 15% of world production, with Greece producing 13%.
This year Spain has overtaken Italy as the market leader in olive oil in the US and Japan. Worldwide
demand for "liquid gold" has risen by 60% over the past 20 years, driven by increased demand in
China, the US, Canada and Australia.
Olive oil has been left off the list of agricultural productsembargoed by Russia in its ongoing spat with
the European Union. "If Russia had included it in the list of banned products it would have been a great
setback," says Rafael Picó of Asoliva, the oil exporters' association.
While it is drought that threatens the Spanish harvest, in the southern Italian olive-growing region of
Puglia the trees have been afflicted by the bacteria Xylella fastidiosa.
"There is no cure. The only solution is to burn the infected trees to stop the bacteria spreading quickly,"
Raffaele Piano, a local grower, said. "Prices will rise by 30% to 40% but quality will not be affected," he
said.
While harvests in other major producing countries such as Greece and Turkey are expected to be at
average levels this year, they will not be able to make up for the shortfall in Spanish production, and
price rises seem inevitable.
Source' http'**www.theguardian.com*3usiness*20/4*aug*2#*oliveoilpricesriseandalusiaspaindroughtpoorharvest
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