Tuesday 9 July 2013

Soaring Prices of Avocado

Short supply, high demand sees avocado prices soar

Avocado prices are soaring this summer due to short supply and high demand and an industry group says shoppers may face similar pricing for some time to come.
Avocados were selling for $2.49 each on weekdays and at the weekend the avocados were sold at $2.99 each. This is because the DEMAND on weekends is more than the demands on weekdays which is due to a lower SUPPLY
For example:

This graph can also relate to the short supply and high demand of the avocado.
When the price of a good increases, the quantity demanded for the good decreases.   As shown in the graph above, when the price increases from 3 to 8, the quantity demanded decreases from 50 to 16. This shows that there is a negative relationship between the price of goods and the quantity demanded. When there is a short supply of goods, it will increase the demand. This will also cause the price of goods to increase because people are willing to pay for the goods with a higher price than usual.

Example to show how supply and demand affect price  :

Imagine that a bag of avocados were sold at $20. Because the company's previous analysis showed that consumers will not demand avocados at a price higher than $20, so only 20 bags were released because the opportunity cost is too high for suppliers to produce more. If, however, the 20 bags of avocados are demanded by 30 people, the price will subsequently rise because, according to the demand relationship, as demand increases, so does the price. Consequently, the rise in price should prompt more avocados to be supplied as the supply relationship shows that the higher the price, the higher the quantity supplied.

If, however, there are 30 bags of avocados are supplied but the demand is still at 20 bags, the price will not be pushed up because the supply is more than accommodates demand. In fact after the 20 consumers have been satisfied with their purchases, the price of the leftover avocados may drop as producers attempt to sell off the remaining avocados. The lower price will then make avocados more available to people who had previously decided that the opportunity cost of buying them at $20 was too high.

In conclusion, the supply of a product does affect the prices of goods, and vice versa

Written by : Adelynn Yeo Qin Qing (0315293)
Reference :
1) http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10866614

1 comment:

  1. Learnt so much from this blog! Its informative and awesome! Good work ! :D