Article | Agricultural products are normal goods with demand and supply being price inelastic.

Running head: ECONOMICS
Economics
Name of the Student:
Name of the University:
Author note:

1ECONOMICS
Paragraph A
Agricultural products are normal goods with demand and supply being price inelastic.
Hence, a small change in the quantity demanded or quantity supplied results in higher change in
prices. The amount of substitute goods is higher in the agricultural market. As it is a necessity
good, with inelastic demand, price changes are significant when there are more substitutes
available in the market (Thong 2019).
On the other hand, the supply of agricultural products is highly variable and depend on
various unpredictable factors, like, weather conditions, perishability and seasonality (Reed and
Saghaian 2018). Weather conditions affect the supply most, as good weather can lead to large
harvest of a crop and similarly, a sudden natural calamity or unusual weather events like early
frost, too much rainfall or drought can damage the supply of a crop of a year. Moreover, many
agricultural products are perishable, such as, fresh fruits and vegetables. Producers accept a
lower price for those goods that have very short shelf life. Seasonality is another factor causing
fluctuations in agricultural product prices. The products that are available only in a particular
season, face lower price during the season, for example, mangoes and oranges, but during off-
season, the price of those goods remains high due to import duties and transportation costs. Due
to inelasticity, when supply of agricultural products changes due to the above mentioned factors,
the effect on price becomes significant (Baffes and Haniotis 2016).
On the other hand, manufactured products do not face uncertainties like weather
conditions, perishability or seasonality, which could affect the supply considerably. Secondly,
manufactured goods are price elastic, hence, a small change in price could lead to large changes
in quantity demanded and supplied, which could affect the revenue and profit of the firms
significantly (Kobayashi 2017). Therefore, price fluctuations are higher for agricultural products
than for manufactured goods.

2ECONOMICS
Paragraph B
Smoking causes negative externality. As stated by Yang and Zucchelli (2018), externality
refers to the cost or benefit of commercial activity that affect third parties who are not associated
with the activity directly and the consequences can be positive or negative. In case of smoking,
not only the smokers get affected from the harmful tobacco, but the non-smokers also get
affected from passive smoking. Thus, smoking generates negative externality due to the spillover
effect on the third party when no compensation is paid by the smokers or anyone in the society.
In case of smoking, negative externality occurs from consumption of cigarettes. In this
case, the personal marginal benefit of the cigarette consumers is higher than the social marginal
benefit, while in the long run, smoking increases the chance of chronic medical conditions for
the smokers. Moreover, passive smoking has indirect cost of lowering productivity and that has
social cost as well. In such cases, the social marginal cost is higher than private marginal cost.
However, as smokers in UniSA will not pay any extra penalties for smoking, hence, the
university authority made the campus a smoke free zone in 31st May, 2014, on the World No
Tobacco Day (Unisa.edu.au 2014). Hence, any violator of the smoke-free policy would be
penalized.
The aim of the policy is to reduce the social marginal cost arising from cigarette
consumption. According to the Vice-Chancellor of UniSA, the policy was implemented to
provide a smoke free, healthy educational, research and work environment to all the people on
the campus and also to create awareness about the public health issues, caused from smoking,
like cancer and different cardiovascular diseases (Unisa.edu.au 2014). Due to this policy by the
university, the smoking on campus has stopped increasing social marginal benefit.

3ECONOMICS
References
Unisa.edu.au, 2014. Smoke Free Campus - Campus Facilities - University Of South Australia.
[online] University of South Australia. Available at: <https://www.unisa.edu.au/Campus-
Facilities/Smoke-Free-Campus1/> [Accessed 6 April 2020].
Yang, M. and Zucchelli, E., 2018. The impact of public smoking bans on well‐being
externalities: Evidence from a policy experiment. Scottish Journal of Political Economy, 65(3),
pp.224-247.
Kobayashi, A., 2017. Price fluctuations and growth patterns in Singapore's trade, 1831–
1913. Australian Economic History Review, 57(1), pp.108-129.
Thong, B., 2019. The Market–Demand and Supply. World Scientific Book Chapters, pp.19-98.
Baffes, J. and Haniotis, T., 2016. What explains agricultural price movements?. Journal of
Agricultural Economics, 67(3), pp.706-721.
Reed, M. and Saghaian, S., 2018. Macroeconomic issues in agricultural economics. In The
Routledge Handbook of Agricultural Economics (pp. 399-411). Routledge.