Supply And Demand Of Olive Oil In Australiaâ€Myassignmenthelp.Com

Question: Discuss About The Supply And Demand Of Olive Oil In Australia? Answer: Introducation: In order to figure out the price of a necessary commodity, the status of demand and supply of the resource can be identified as one of the crucial determining concepts. In the meanwhile, there are various factors to be taken into account that has affected the supply and demand side (Adil, 2016). Precisely, increase in demand can contribute to an incline in the price of a commodity in a free marketing where supply is constant. Similarly, a shortage in supply can lift the prices as well (Taylor, Stonebarger and Leven, 2015). In this particular study, the article by Erickson (2017) has been explained containing the demand and supply side status of olive oil in the Australian market. According to the article, due to the shortage in supply of olive oil at the international market, the price of the commodity can jack up around the world. Apart from the demand shortage, soaring demand from the Chinese economy has added excess fuel to the rise in the price of olive oil. In this study, it has been clearly discussed how the shortage in supply and growth in demand have contributed towards the price surge of olive oil in Australia as well as around the other international markets (Erickson, 2017). Also, the impact of price rise has been a significant challenge for the olive oil consumers as the olive oil lovers have to pay much higher price for the commodity. Australia can be identified as the second largest consumer Management of olive oil in terms of per capita consumption right behind the Mediterranean (Erickson, 2017). Evidently, the country has consumed the double amount of olive oil annually that it has produced domestically. Olive oil is majorly used in the restaurants due to low presence of fat. Recently, erratic weather conditions in the major olive producing countries such as Spain, Italy, and Greece have discouraged the production of the commodity. Due to decimate crops, the shortage of the commodity has been created. Apart from that, the growing costs of production have downcast the global production of olive oil (Herbert, 2016). Additionally, the consumption of Olive oil has increased in the Chinese market, which has emerged to a major problem for the global olive oil producers. For instance, the people of China consume around AU$260 million worth of olive oil and 99 percent of the product is imported from other major olive oil producing markets. According to experts, the production of olive oil is set to decline by eight percent globally. With increase in demand and shortage of supply, the price of olive oil is drastically increasing in the global market. For example, the price of olive oil has increased by 30 percent in Italy and around 10 percent in Spain. Buyers have stated that the price of olive oil has been up by 13 percent at $8.44 per litre in the global market (Erickson, 2017). In the Australian market, most of the olive oil demand has been met from the external markets. Hence, the rise of the price in the global market can create a massive impact on the importers as well as the domestic consumers. On the basis of the demand and supply theory, it can be seen that the rise in the demand for olive oil can be evident in every part of the world including Australia due to the lesser amount of fat present in the oil. On the other hand, the fall in the supply causing due to unpleasant weather and increase in fruit flies and bacteria. Hence, it can be seen that the increase in the quantity demanded is relatively lesser than the decrease in the quantity supplied (Kolberg, 2008). Hence, a tremendous hike in the price of olive oil can be evident in the global as well as in the Australian market. A figure has been presented with detailed explanation herein below: Figure: Demand and Supply of Olive Oil Source: (Forstater, 2017) By considering the above diagram, it can be seen that an increase in demand has resulted in a shift in the demand curve from D to D1. On the other hand, the fall in the quantity supplied due to unpleasant weather and atmosphere has resulted in a leftward shift in the supply curve from S to S1 (Bochet et al., 2012). However, it is important to note that the shift in the supply curve is more as compared to the shift in the demand curve (Forstater, 2017). Furthermore, the equilibrium point also shifts from E to E1 resulting in a fall in the quantity consumed from Q to Q1 and hike in the price of olive oil from P to P1. On the basis of the above discussion, it is important for the Australian Government to note that the rise in the demand and fall in the supply for Olive Oil will result in an increase in the global price that will further impact the price of the commodity in the domestic market. Hence, the government must introduced necessary policy reforms in order to increase the production of Olive oil in the Australian market (Setterfield, 2013). For instance, the government can provide subsidies and low rate credits to the olive oil farmers to increase their production. It will further help the economy to meet its growing demand for Olive oil and be safe from the rising price of the commodity in the global market. From the above analysis, it can be stated that shortage of olive oil around the globe due to poor weather conditions has been identified as the major influencing factor of the price of the commodity. According to the research of the article, the worst scenario is yet to come as the shortage of olive oil can increase in the upcoming year. However, apart from the shortage, an increase in the demand for olive oil from the major importers such as China has pushed the prices further up. Notably, the Chinese consumers are consuming olive oil estimated worth of US$ 200 million every year. The rise in demand and shortage of the commodity; both have supported the price hike of olive oil in Australia and around the globe. Hence, the Australian Government must introduce some necessary policy reforms to mitigate the issue of rising price of Olive Oil. References Adil, J. (2016).Supply and demand. 3rd ed. Mankato, Minn.: Capstone Press. Bochet, O., ?lk?l?, R., Moulin, H. and Sethuraman, J. (2012). Balancing supply and demand under bilateral constraints. Theoretical Economics, 7(3), pp.395-423. Erickson, A. (2017).We're about to suffer a worldwide olive oil shortage. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/world-business/were-about-to-suffer-a-worldwide-olive-oil-shortage-20170216-guezrk.html [Accessed Aug. 2017]. Forstater, M. (2017).Economics. 3rd ed. London: A. C. Black. Herbert, L. (2016).Why pay double for the same sized bottle of extra virgin olive oil?. [online] ABC Rural. Available at: https://www.abc.net.au/news/rural/2016-03-22/how-is-extra-virgin-olive-oil-made/7263186 [Accessed Aug. 2017]. Kolberg, W. (2008). When Firm-Level Demand with Price Competition and Inverse Demand with Quantity Competition Coincide.SSRN Electronic Journal. Setterfield, M. (2013). Supply and Demand in the Theory of Long-run Growth: Introduction to a symposium on demand-led growth.Review of Political Economy, 15(1), pp.23-32. Taylor, T., Stonebarger, T. and Leven, J. (2015). Economics. 3rd ed. Chantilly, VA: Teaching Co.