Cost of Tomatoes Essay Example
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1. The price of tomatoes in Australia will increase due to the decrease in supply. The weather affected the tomatoes causing the supply of tomatoes to go low. In the competitive market, demand and supply determine the prices of goods. The higher the supply, the lower the prices when the demand remains constant. The lower supply, the prices are prone to go high when the demand remains constant. In this case, Australia will encounter high prices in tomatoes given the severe weather that will affect the supply by reducing it.
When prices are low the quantity supplied is small and when the prices are high, the amount provided is usually great. This is because the suppliers tend to supply more so as to maximise their profit. The tomato supplies will, therefore, supply the available tomatoes at a high price to make more profit rather than sell them at the usual low price that will reduce their profit.
The increase in prices for tomatoes will affect demand in that few people will be able to afford the tomatoes and others are likely to look for other goods that will supplement the tomatoes. The supply of tomatoes will hence be small. The number of vegetables demanded will, therefore, be low given that the prices are high (Chen et al. (2010) pp. 70-80).
The process of equilibrium.
The high prices by suppliers will increase their supply but reduce their demand. This will result to them having surplus tomatoes to sell. The existence of excess vegetables to sell will force the sellers to reduce their prices so that they will be able to sell the entire supply. When the suppliers sell the tomatoes at a meagre price, the amount will end and cause shortages that will not be able to meet the available demand hence a loss will be incurred by suppliers.
On the other hand, once the sellers have reduced the price, the demand which was initially low will increase. It will be as a result of affordable prices to consumers and will lead to the amount required to be equal to the amount supplied (Mendoza & Yue (2012) pp. 889-946).
The other markets will have to adjust to the equilibrium price because if they sell the goods at a higher price, few people will come to buy from them. If they also reduce the rate to be lower than the equilibrium price, they will get a lot of demand that will yield small profits hence incur losses.
2. The price of elasticity of demand is used to measure the quality of application which varies with the price (Darghouth et al 2016, p.1460)
The availability of the substitute goods. In the above case study of Australia, there is no substitute good s for the tomatoes hence the demand for tomatoes is inelastic. Since, consumers cannot switch, from the consumption of tomatoes to another product.
The customers budget for the consumed items. The goods and services that consume a significant portion of the purchaser’s assets have more elasticity. Due to the high cost of tomatoes as a result of high demand than what is available on the market. It will amount to more of its purchase in the budget resulting to it being elasticity.
The degree of necessity. The higher the need for the tomatoes in the Australia the lower their flexibility. Since, the consumers will tend, to purchase the tomatoes regardless of their high prices. Not forgetting luxury goods and services more often have a higher elasticity
The duration of the price difference. For small lasting products, flexibility tends to be greater in the extended period than in the short time. In the short term, it is hard for the consumers to find substitutes in response to the price changes but the customers adjust with time. In the above case study, the tomatoes easily will be great in the long run than in the short term. The Loyalty from a good. Consumers may get attached to the product hence resulting in the change in their prices which leads to the inelastic to the demand. Is applicable in the above tomatoes case study as some consumers get attached to the consumption of it leading to the inelasticity.
Explanation using illustration
The case of perfectly elastic demand it is demonstrated graphically by the horizontal line and the case of the price increase it will lead to zero amount of the product required (Galperi et al 2013, p.430).
Perfectly inelastic demand. It is represented in in a graph, while the vertical line and indicates the price elasticity of zero at every point of the curve. Which, explains that the product will be demanded regardless of it price is high or low(Galperi et al 2013, p.431).
Effects of rising tomatoes prices on the total revenue of its wholesale market.
Bearing in mind that total revenue is the test of determining whether the demand is elastic or inelastic. Having observed that the tomatoes demand are both elastic and inelastic depending on the determinants subjected to.in the case where the increase in tomatoes price may increase the total revenue since the increase in price didn’t hinder people from buying tomatoes. But in some case where people were consuming a few tomatoes due to increase in price, it resulted in the decrease in the total revenue.
3. So as to sustain the supply of tomatoes, the government can form partnerships with other nations that produce tomatoes. For instance, Australia can import tomatoes from Italy. An advantage of this strategy is that during scenarios of harsh climatic conditions like the one experienced, the shortage of tomatoes will be reduced or put under control. A limitation in this strategy is that the local suppliers of tomatoes are likely to lose the market for their products when the export from other countries increases. They will be forced to sell at low prices to avoid a surplus of tomatoes when the tomatoes increase in the market.
The government can provide training to farmers to so that they can keep farming tomatoes. Tomato farmers experience massive losses at times due to climatic conditions, and this prompts some of them to abandon farming. For this to be avoided, the government can finance a research to come up with conditions that farmers can use so that the tomatoes can be able to persevere harsh weather. It will ensure that the supply of tomatoes is sustained. A limitation of this strategy is that a lot of finances will be required to fund the research.
The government should employ the use of artificial supplements of tomatoes to kerb the shortage of the tomatoes which results in the increase of the tomatoes. The introduction of plants supplements will lead to the decrease of its high prices, hence increasing the total revenue of the market. Also, the introduction of this artificial supplement will create a competitive market in the market, hence lowering their high prices, enabling the customer to cut down on the tomatoes budget allocated. Though, the introduction of this supplements for the plants may impact negatively on its demand, resulting to its inelastic. Hence, losing its market value while that of artificial supplement goes up (Jeston et al 2014, p.155)
Chen, H., Chen, Y.F., Chiu, C.H., Choi, T.M. and Sethi, S., 2010. Coordination mechanism for the supply chain with leadtime consideration and price-dependent demand. European Journal of Operational Research, 203(1), pp.70-80.
Darghouth, N.R., Wiser, R.H. and Barbose, G., 2016. Customer economics of residential photovoltaic systems: Sensitivities to changes in wholesale market design and rate structures. Renewable and Sustainable Energy Reviews, 54, pp.1459-1469.
Galperin, H. and Ruzzier, C.A., 2013. Price elasticity of demand for broadband: evidence from Latin America and the Caribbean. Telecommunications Policy, 37(6), pp.429-438.
Jeston, J. and Nelis, J., 2014. Business process management. Routledge.pg 150-160.
Mendoza, E.G. and Yue, V.Z., 2012. A general equilibrium model of sovereign default and business cycles. The Quarterly Journal of Economics, 127(2), pp.889-946.
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