Describe about the Economic Principles for Production of Business.
The economic analysis is study of the social factors that determines the production, distribution, and consumption of goods and services (Becker, 2013). It focuses on the behavior and interactions of the different factors such as demand and supply. The economic principles basically focus on two demonstrates such as macro-economic and micro-economic factors. In the micro-economic, the supply and demand are significant factors that determine the price of the product in the market (Drummond, et al., 2015). The price of a product is significantly affected by the demand and supply for this product.
This article is about the price movement of the product due to the impact of supply. According to the given information, Avocado is the popular and unique fruit in the Australian market. Often, it is sales an average price between the $3.9 and $4 but, in this season, it is available $75 per tray. In Australia, the demand of the Avocado is completed from the Western Australia and New Zealand. But, in this season the supply from both are down approximately 30 percent.
Mr Tyas said that every season 360000 Avocados produces in a week but, this time; only 100000 Avocados are producing in a week. It is because the harvesting of the avocado is low in this season. Along with this, the supply from the New Zealand is affected due to some rain and slow down harvesting. The people is emerging in the other works rather than the harvesting of Avocados. The season of this fruit is start from the late- -February but this time, the demand of the avocado will be struggling to provide the April demand.
Through the analysis of this article, it is found that the supply and demand play a significant role in influencing the price of the product. The concept of the supply and demand of the product is one of the most fundamental concepts of the price inflection. In this article, the impact of the supply is shown on the price of the Avocado. The price is increased due to the supply of the Avocado has decreased. It is because harvesting of the crop is down in the Australia. Along with this, in the context of the demand comes from New Zealand is also low due to the crop of the Avocado is affected by the rain.
It is also analyzed that price of the good or service depends on the supply of goods and consumer demand (Granger, et. al., 2014). If supply is too low than its price will be high in the market. It has been seen in the context of the Avocados’ price. According to the given information, the supply of the Avocado is low due to the slow down harvesting and crop is also affected due to the rain. Due to the less supply in the market, the price of the Avocado has been reached at $75 tray, which is twenty times more than normal price in the market. It shows that when the supply of the product remains low then it the price will increase in the market. The low supply is also lead top high demand because sometimes the supply is unable to complete the total demand of the customers (Webster, 2016).
From the above analysis, it can be said that there is a strong relationship between the supply of a product and its price. According to the theory of the economy, the price of the good will increase when its demand is high and supply is low in the market. It is same in this case, Avocado is famous fruit in the Australia, which is beneficial for health and also part of many dishes due to this its demand remains always high in the market. Now times, the supply of the Avocados is very low so that its demand is very high compared to last seasons. That is why the price of the avocado is reached at $75 per tray (Webster, 2016).
Demand and Supply
The term demand refers to the quantity demand of a goods and service that show the amount of customer willingness or plan to purchase during a period of the time at a particular price. It includes some major elements such as wants, affordability and definite plan to buy. On the other hand, the term supply refers to an amount of total goods and services that producers plan to sell during the specific time period at the particular price (Lewis, 2013).
[Source: Lewis, 2013]
Figure 1: The Supply Curve
There is a significant relationship between the price of a product and its demand and supply. The price elasticity of the supply measures the price change in the context of the change variable in the supply. The elasticity of the supply keeps a positive relationship with the price of the product because there is positive coefficient between the supply and price. The concept of the demand states that, if all the factors remain same or equal, the price of the good is higher than the fewer customers will demand the goods (Shauver, et. al., 2013). The supply is a volume of the good that manufacture or producer provide against the demand in the market. The producer has to supply more of the items when the producer can sell it at a high price compared to the low price.
The quantity supply is an amount of total that are offered by the seller with the willingness of the sell in the market. There are some factors that determine the supply such as price, input price, technology, expectation, the number of the seller. The law of the supply is explained that when all the things remain equal than the supply of the product will increase when the price of the product increase. The quantity supplied has a positive relationship with the price of the goods. In this, the supply schedule is effective to show the relationship between the supply and price. It is also known the name of supply curve graph. In the economic theory, low supply leads to raise the demand of the product. It is also seen with Avocados’ demand when its supply is low in the market than it demand is also high. At the same time, the high demand for the product generates the high price of the product in the market (Kolbe, et. al., 2012). It can be better understand through the help of below graph.
[Source: Kolbe, et. al., 2012]
Figure 2: The Demand Relationship
According to the Balassa, (2013) the price of the product is determined by force of the demand and supply. The demand and supply of the product act as the signals of the movement of the price. According to the given information, there is no substitute of the Avocado in the market. In this situation, the low supply of the leads the high price of the goods that has been seen with Avocado. Theory of economic growth exhibits that if the supply of the product decrease and demands remains unchanged; it leads to higher equilibrium price and lower quantity (Keynes, 2013).
According to the equilibrium theory, in the economic, when the market situation is equilibrium than the price of the product stays the same in the market (De Jaegher, et. al., 2014). Market equilibrium also affects the price of the product. In this, when the equilibrium decreases, it means that increase in the supply of the goods. In this situation, the supply curve is shifted to the right. Opposite of this, when the equilibrium increases, it means that decrease in the supply of the goods. In this case, the supply curve is shifted to the left. In the both situation, the demand of the goods remains unchanged (Jorgenson, et. al., 2016).
In the economic, the supply curve is able to represent the relationship of the quality supply of a good and service and its price in the graphical format. In this type of the presentation, the price appears as left the vertical line and supply appears horizontal line.
[Source: Jorgenson, et. al., 2016]
Figure 3: The Movement of the Supply Curve
The below graphs show that what is impact increase and decrease supply on the price of goods or service.
According to the American Diabetes Association (2013), the law supply leads to the high price of the goods and services. The above graph depicts that how the supply curve is shifted left due to the decrease in the supply. It also shows that influence of the supply on the price of the goods.
Burdina, (2015) has conducted a study in the context of supply and demand. In this, it is stated that the supply, demand and price of the good are related to each other. The demand and supply affect the price of the good in the market. The basic economic principle depicts that if there is an oversupply of a product in the market, its price fall in the market. Opposite of this, the principle also states that when the goods’ supply remains low, in this situation, its price goes to high (Kolbe, et. al., 2012). In the economic, inverse relationship is presented between the price and supply of the product in the situation of the demand is unchanged. In the market, the supply is increased for goods or service and demand is unchanged, the price of the goods will go to down to a lower equilibrium price. In contrary, in the market, supply for the good is low and demand is just same, the price will go to higher equilibrium price (Cremer, et. al., 2012).
It is also same with the inverse relationship in the context of the demand and price. In this, the principles state that when the demand for goods goes to high and supply remains unchanged that time its price in the market will go to higher equilibrium price (Soon, et. al., 2015). In another situation, when the demand of the goods goes to down and its supply remain same that time its price in the market will go to down equilibrium price. For example, imagine a car manufacture company launch its new luxury modal at the price of $200000. In the current market, the demand for the luxury car is high and as concerning the company keeps it supply high. Unfortunately, the demand for the luxury car goes down and people do not like to pay $200000 for the car. As the result, the demand for the care goes to down and its sales will fall quickly. At the same time, due to the oversupply if the car and low of the demand, the company will reduce its market price at $150000. It will help the company to maintain the balance between the demand and supply of the car.
From the above discussion, it can be concluded that there is a significant relationship between the demand and supply and inverse relationship between the supply and price of the good or service (Coale, et. al., 2015). It is also concluded that when the supply of the product decreases then its price will raise in the market. The same thing has been seen in the given article. The avocado price is increased due to the supply of the Avocado in low in the current time. For managing the balance between the supply and price of the Avocado, the Avocados Australia CEO John Tyas should maintain the safety stock at the warehouses. It will help to manage the demand and supply and it will also help to keep price sustainable. Along with this, producers should implement the effective planning to complete the demand of the Avocado in Australia. The supply of the Avocado can be significantly improved through reducing the lead times within the process.
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