Impact of Swine Fever on Pork Market

This document discusses the impact of the Swine Fever outbreak on the pork market and alternative sources of protein. It explores assumptions regarding the income elasticity of demand for meat and the trend towards healthier eating. The document also explains the kinked demand curve model in oligopoly market and its implications. Additionally, it discusses the consumption function and equilibrium level of income in Country A. Finally, it examines the macroeconomic demand schedule and the impact of recession on inflation and output in Country D.

Fundamentals of Economics

Table of Contents
sTASK 1...........................................................................................................................................1
Impact of outbreak of Swine Fever of market fever on the market of pork................................1
Impact of outbreak of Swine Fever of market fever on alternative sources of protein...............3
Assumptions regarding the income elasticity of demand for meat..............................................3
Impact of trend towards healthier eating upon market for meat in Country X............................3
TASK 2............................................................................................................................................5
(a) Assumptions that underpinned the kinked demand curve model of oligopoly market..........5
(b) Impact of changes in equilibrium price and other components in oligopoly market.............5
(c) Products or services which seem to align within kinked demand curve model of oligopoly 6
TASK 3............................................................................................................................................7
(a) Explanation of consumption function and level of consumption in Country A.....................7
(b) Explanation of equilibrium level of income as per consumption function............................7
c) Identification of value of multiplier in Country A after introducing the government.............8
d) Level of government expenditure............................................................................................8
TASK 4............................................................................................................................................9
(a) Macroeconomic demand schedule.........................................................................................9
(b) Impact of recession on level of inflation and output in Country D......................................11
(C) Way to re-establish the original inflation rate by central bank of Country D.....................11
REFERENCES..............................................................................................................................12

TASK 1
Impact of outbreak of Swine Fever of market fever on the market of pork
Meat and poultry consumption is considered as one of the important diet in today’s world,
where people consume such products more than grain. Due to limit to total calorie diet, ratio of
meat products is much larger than grain commodities, or other food products. Analysing the meet
consumption pattern, it has evaluated that among beef, pork and poultry, people demand more
for pork products because it is relatively high rich in protein. But after spreading the swine fever,
it has killed many pigs, however, it doesn’t affect human’s health. In context with Country X,
this nation accounts for near about half of the world’s pork production, with around 660 million
annually. But after outbreak of Swine fever, it results over 100 million pigs slaughtered. After
spreading endemic about swine fever, it decreases the livestock of pigs in mentioned nation. Due
to this issue, supply of production decreases with increase in demand of pork meat at
marketplace, as shown below -
As per this figure, due to Swine fever the supply of pork products is highly decreased with
reduction in production. According to the law of demand and supply, it leads to increase demand
of pork commodities at marketplace as shown in below figure. So, this would highly affect
economy of Country X as well, due to failure to meet demand of pork meat at marketplace.
1

In case keeping the demand constant, consequences of swine fever which has killed
millions of pigs and reduces their livestock, have soared to increase its price which high records.
To keep and maintain economic condition, Country X which is the biggest exporter of pork meat
at international level, will supply the same at high rates, which results in shifting the demand
curve from left to right as shown below –
2

At worldwide level, after outbreak of Swine Fever, has completely reshaped the global meat
trade. The virus which harmless for humans but deadly affect the pig stocks, has sent the pork
meat prices at sky-rocketing. However, purchases of pork meat is likely to remain volatile, so, it
increases competition in other countries for boosting their sales in meat market.
Impact of outbreak of Swine Fever of market fever on alternative sources of protein
As entire global trade of pork volumes makes up about 50% of Country X production, so, in
case of not getting enough supply of pork meat, it may lead to meet demand of consumers by
offering them alternative products like beef and poultry. Because pork industry of this country
may take years for recovering, from swine fever. It also required long-term efforts which are
centred to on revamp attempt for entire pig industry. In such case, to keep sustainable and
competitive image in international market, Country X may focus on alternative substitutes of
pork meat. With consequences of swine fever on pork prices that will approach to record high
levels, as per industry analysts on consumer response, it has analysed people that people’s choice
will shift on other protein rich substitutes. This will increase demand of such meat products,
therefore, to simulate the demand and maintain economy, Country X may emphasis on supply of
beef and poultry products. Similarly, cross-price elasticities among disaggregate meat products
like beef, pork and poultry, shrink or increase with rise in prices. Crises of pork products with
increase, will boost sales of alternative sources of protein (poultry and beef products).
Assumptions regarding the income elasticity of demand for meat
Since it has been estimated that annual meat consumption in Country X has been risen by 64
kg annually till 2018, per person from 14kg in 1980s per person. So, it states that total mean
production relatively as growth in total population, is growing at faster rate. Along with this,
increase consumption of meat also indicates a high growth in individual income. Because
increase per capita play a significant role accelerating the meat consumption like beef, poultry
and pork. Thus, it has assumed from this analysis that demand elasticity of meat products is vary
with per capita income as well as its production.
Impact of trend towards healthier eating upon market for meat in Country X
Change in perception of consumers towards healthier eating impact both in negative and
positive manner, upon market for meat within Country X and at international level. It has a
meaning impact on the consumption behaviour of consumers. Now, they tend more towards
3

consuming healthier meat products which are rich in protein such as pork. It leads to Country X
to increase its economy by supplying more pork products in meat market, at both national and
international market. But consumption of meat products increase cholesterol level, which further
leads to generate disease like coronary heart issues, obesity, diabetes and more. So, in such case,
consumers tend to become veganism i.e. consuming vegetarian foods like grains. This put
negative impact on economy of Country X, due to decrease in demand of meat products (pork).
Impact of choice of healthier food upon meat market can be seen through below graph,
where it states that demand of meat products which is rich in protein shift demand curve from
right to left, with shift of supply curve from left to right. While awareness about increased
cholesterol level, change meat consumption behaviour and entire supply as well as demand curve
in opposite direction.
4

TASK 2
(a) Assumptions that underpinned the kinked demand curve model of oligopoly market
Within an oligopolistic market, it has analysed that demand curve cannot be fixed due to
intense competition, which leads to vary price and quantity of output. So, two assumptions that
shows existence of click in firm at the prevailing price level are – segment is highly elastic above
their prevailing level; and below in the same leads to inelastic in segment.
(b) Impact of changes in equilibrium price and other components in oligopoly market
From the figure, p denotes the prevailing price level and q as equilibrium quantity, so,
assuming the hypothesis of kinked demand curve, it has analysed that if a firm in oligopoly
market lowers price of its products, then under such case, competitors will follow them. If
competitors do not reduce their goods price in same market, then they may loss retention of their
customers. Therefore, lower in price or lower portion of curve shows inelasticity. On the other
5

hand, increase in price leads firm to face heavy decline in sales. So, they avoid to raise price of
products in oligopoly market, which forms kink in demand curve at prevailing price.
(c) Products or services which seem to align within kinked demand curve model of oligopoly
Products or services, that can be aligned with kinked demand curve model of oligopoly and
allows firm to raise price, without any fear of decline in sales are iPhone of Apple Inc. and
software services offered by Microsoft. iPhone is one of the smartest phone that consumers are
willing to buy on any price, so, increase in its price doesn’t reduce its demand at marketplace.
Similarly, software products and technology produced by Microsoft can also be aligned with
kinked demand curve model of oligopoly.
6

TASK 3
(a) Explanation of consumption function and level of consumption in Country A
Given, Consumption function for Country A as
C = a + by
where, C denotes consumption expenditure and Y as income
Consumption function defines the functional relationship between gross national income
and total consumption. This function can be used for tracking and predicting the total aggregate
expenditure of consumption. In context with Country A, factors which determine the level of
consumption are per capita income, wealth, interest rates, size of population and willingness of
consumers, financial policies of organisation, fiscal policies and demographic.
(b) Explanation of equilibrium level of income as per consumption function
Consumption function for Country A is given by –
C = a + by
taking a = 200 units, value of b = 0.82 and investment as constant at 100 units,
then, level of income in Country A will be
C = 200 + 0.82 y + I
where, I = 100
C = 200 + 0.82y + 100
C – 0.82y = 300
Thus, equilibrium level of income will be determined at y = C
so, y – 0.82y = 300
0.18y = 300
y = 300/0.18
= 1,666.
7

C = a + by
Z
Consumption Expenditure
ϴ = 45⁰
Income
c) Identification of value of multiplier in Country A after introducing the government
New Function of Consumption is given as –
C = a + 0.5YD
where YD is disposable income after tax; and Tax T = 0.1Y
then,
C = a + 0.5 (Y – T)
= a + 0.5 (Y – 0.1Y)
= a + 0.45 Y
so, it has analysed that value of multiplier will be increased by 9 times
d) Level of government expenditure
Government expenditure level (Gm) = 1/(1 – b)
then, increase in government expenditure required to achieve 2000units can be
calculated by –
ΔY = Gm x ΔG
8

TASK 4
(a) Macroeconomic demand schedule
Macroeconomic or aggregate demand schedule represents the total spending amount of a
country on its domestic goods and services, at different income level. In context with Country D,
the MSD graph is given as below –
Inflation
MDS
Output
This figure represents the downward sloping of macroeconomic demand schedule in
inflation period of economy. So, it depicts that demanded quantity of output increases with drop
in price levels. Along with this, decrease in price level also depicts increase in national income,
under such conditions per capita income of consumers enhances which induces their spending as
well.
Assumptions related to Macroeconomic demand:
With aggregated demand schedule, it has assumed that prices are flexible i.e. markets are
easily able to make quick and efficient adjustment to equilibrium. But this assumption not states
that each and every is in equilibrium in the economy. There is still a chance of shortage or
surplus quantity of some products in this condition also. The another main assumption is based
on production of goods or services is enough under aggregate demand schedule, which
misinterpreted information. In actual context, MDS states that production of commodities is
ensure for being purchased by waiting customers.
9

Inflation
AS
Output
Aggregate supply schedule can be defined as total goods and service amount (real output)
produced by firms and to be supplied within a market, over certain period of time. It includes not
only domestic goods (both public and private) but also from overseas markets. As per the above
figure of aggregate supply schedule, it has estimated that changes in aggregate demand will
affect only price level, without influencing the level of real output. AS is always vertical in long-
run, because GDP of a country mainly depends on labour supply, availability of technology and
resources as well as capital. So, in long-run, these production factors determine goods and
service quantity which are going to be supplied in economy. Along with this, such quantity of
supply always remains same regardless of level of price.
Assumptions related to Aggregate supply:
In aggregate supply, flexible price refers to be first assumption which indicates that any
kind of surplus seems to be temporary. In this regard, it has believed that continuous supply will
imbalance the surplus and to restore equilibrium, wages of labour need to be reduced. Similarly,
another main assumption about AS is that supply creates its own demand, i.e. if a product is
excessively supply in a market then it will raise its demand. So, this assumption cannot hold its
true meaning, which states that aggregate supply is that there is a enough product to meet
demands of customer.
10

(b) Impact of recession on level of inflation and output in Country D
Inflation
AS
p*
MDS
Y* Output
Recession period of a country shows about slowdown of its economic growth, where people
spends more on purchasing the products or services. It shows demand of goods is much higher
than supplied quantities, which results in increase in price. So, this factor creates increase in
inflation rate of goods. But inflation rate also rise increase in input cost for companies also.
Therefore, under this case to reduce production cost, firms put brakes on the same, with
reduction in wages and also adopt different measures for cost-cutting. It leads to prolonged the
recession or economic depression with increase in inflation rate. In context with Country D, in
case of recession, people reduces their spending which further trigger the overall reduction in
expenditures. So, it leads to high of interest rates, with decrease in per capita income, as well as
reduces country’s purchasing power of currency also. It shows from overall analysis that
recession of economy highly impacts the inflation also, mostly in negative manner.
11

(C) Way to re-establish the original inflation rate by central bank of Country D
To restore economic and re-establish the original inflation rate, central bank of Country D
will take actions to make changes in fiscal and monetary policies, in following way –
Through monetary policies, central bank can mitigate the impact of fiscal policies in recession
period on interest rates as –
Nominal interest rate = real interest rate + expected inflation
Let assume that initially real interest rate is 3% and expected inflation rate is 1% then it
leads to nominal interest rate as 4%. So, to stimulate inflation rate under recession period,
changes will be made in real interest rate by increasing the government spending. In such case,
expansionary of fiscal policy may increase aggregate demand that turn to more output. Along
with this, if central bank can engage in expansionary of monetary policy in same duration, then it
will lower down the nominal interest rates and inflation rate may come on original state.
12

REFERENCES
Books and Journals
Ivanova, P. and Ivanova, E., 2019. Economic model for calculation of direct and indirect
economical losses from African swine fever occurrence. Bulgarian Journal of Veterinary
Medicine. 22(2)
Antohi, V. M. and et. al., 2019. Approaches regarding the Management of Food Policies in the
Context of the African Swine Fever Crisis based on a Food Sustainability Statistical
Model. The AMFITEATRU ECONOMIC journal. 21(51). pp.329-329.
Borca, M. V. and Gladue, et. al., 2020. Development of a highly effective African swine fever
virus vaccine by deletion of the I177L gene results in sterile immunity against the current
epidemic Eurasia strain. Journal of Virology. 94(7).
Xu, C. and et. al., 2020. Viperin inhibits classical swine fever virus replication by interacting
with viral nonstructural 5A protein. Journal of medical virology. 92(2). pp.149-160.
Lu, G., Pan, J. and Zhang, G., 2020. African swine fever virus in Asia: its rapid spread and
potential threat to unaffected countries. Journal of Infection, 80(3), pp.350-371.
Douven, R., Van der Heijden, R., McGuire, T. and Schut, F., 2019. Premium levels and demand
response in health insurance: relative thinking and zero-price effects. Journal of
Economic Behavior & Organization.
Avtonomov, V. and Avtonomov, Y., 2019. Four Methodenstreits between behavioral and
mainstream economics. Journal of Economic Methodology, 26(3), pp.179-194.
Greenstone, M., Mas, A. and Nguyen, H. L., 2020. Do Credit Market Shocks Affect the Real
Economy? Quasi-experimental Evidence from the Great Recession and" Normal"
Economic Times. American Economic Journal: Economic Policy, 12(1), pp.200-225.
Koves, A. ed., 2019. Foreign economic liberalization: transformations in socialist and market
economies. Routledge.
13