Report on the Economics of Australian Avocado Market: Demand-Supply

This report provides an economic analysis of the Australian avocado market, focusing on the interplay of demand and supply. It examines a news article discussing anticipated price drops and the steady supply of avocados. The report details the increasing demand and domestic supply, along with imports from New Zealand, highlighting the market's boom. It explains how expectations of price falls are linked to increased supply from newly planted trees but notes that consistent demand may prevent significant price reductions. The analysis incorporates economic concepts such as demand and supply curves, market equilibrium, and potential market distortions. The report concludes that while increased supply could lower prices in the long run, the balance between demand and supply will determine future price trends, emphasizing the uncertainties due to climatic conditions and the maturity of new avocado trees. Desklib provides a range of solved assignments and past papers for students.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Article Essence...........................................................................................................................2
Avocado Market in Australia.....................................................................................................3
Economic Interpretation.............................................................................................................4
Conclusion..................................................................................................................................7
References..................................................................................................................................9

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Introduction
In the conceptual and theoretical framework of economics, one of the key components
of immense importance is the concept of demand and supply of products and services in a
market. The term “Market”, in economics, refer to the place where the demand and the
supply side players, that is the buyers and the sellers, respectively interact with each other
and take decisions regarding the quantity and price of the concerned product or services
(Baumol and Blinder 2015). The prices of the commodities depend on the demand and supply
situations present in the market for that particular commodity and any variation in the
demand or in the supply dynamics lead leads to changes in the price of the same.
Keeping these aspects into consideration, the concerned report tries to analyse the
current issues arising in the avocado market of Australia, in the contemporary period, in the
light of the demand-supply conceptual framework of economies. The report refers to the
news article named, Avocado prices will not drop, industry expert says, to get an overview
of the situations in the concerned market of the country (McInnes 2018).
Article Essence
As per the assertions of the article, there is positive anticipation among the customers
of avocado in the Australian market, regarding the expected fall in the price of the same.
However, as the article shows, according to the chief executive of Avocados Australia, there
is no such indication of a drop in the price of avocado in the coming years. He also
anticipates that the supply of avocado will not increase significantly but will remain steady
over the years and also have the threat of falling short in February.
One of the explanation behind the anticipation of people regarding the fall in the price
of avocado in near future maybe the fact that many new trees have been planted to meet the
demand for the fruit in the market of the concerned country and also the fact that within one

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year (From 2016-2017 to 2017-2018) the production of the same has increased from 66,000
tonnes to 75,000 tonnes. The article also suggests that with more trees being planted and with
nearly one third of them being not yet mature, there are expectations of increase in the supply
of avocado consistently in the coming years (Mazhar et al., 2014). However, the demand for
the same has also being increasing and becoming uniform throughout the year, owing to the
increased popularity of the fruit. The article also asserts towards the fact that as the
production and supply of these fruits are subjected to the climatic and other exogenous
conditions, therefore, nothing can be concretely said about the price trends in the future.
Avocado Market in Australia
The assertions made by the article points towards the fact that in the current period,
the avocado market of Australia is found to experience a boom. The demand as well as the
domestic supply of the same is found to increase, along with the increase in the imports of the
same from New Zealand, as can be seen from the following figure:
Figure 1: Increase in consumption, domestic supply and imports of Avocado in
Australia
(Source: Thenewdaily.com.au 2018)

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As is evident from the above figure, both the supply and demand for avocado in the
country has been showing steady and positive growth trends, barring occasional fluctuations
(Becker 2017). With new trees getting planted in huge numbers in the country, the supply is
expected to increase even more in the coming years, as can be seen from the following figure:
Figure 2: Current and Future trends in the growth of production of avocados
(Source: Thenewdaily.com.au 2018)
This projected trend in the supply of avocados has led to the expectation of a fall in
the price of the same, which can be explained with the help of demand and supply dynamics
in the conceptual framework of economics.
Economic Interpretation
In the conceptual frameworks of economics, the demand for a normal commodity
increases with a decrease in price and vice versa, which indicates towards the fact that the
demand curve for normal commodities is negatively sloped:

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Figure 3: Demand curve for normal commodities
(Source: As created by the author)
On the other hand, with the increase in price leads to the increase in supply of normal
commodities and vice versa, which in turn indicates towards the fact that the supply curve of
the commodities is positively sloped (Nicholson and Snyder 2014).
Figure 4: Supply curve for normal commodities
(Source: As created by the author)

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The equilibrium in a market, occurs at the point where the demand and supply curves
intersect each other and any deviations from the same creates market distortions which can be
shown as follows:
Figure 5: Market equilibrium and market distortions
(Source: As created by the author)
As is evident from the above figure, when the demand is more than supply, it leads to
excess demand in the market, which in turn leads to an increase in the price of the
commodity. On the other hand, if the supply is greater than demand there occurs excess
supply in the market, which decreases the price of the same (Hall and Lieberman 2012).
This explains the anticipation among the customers regarding the decrease in the price
of the same. However, with the demand for avocados increasing substantially in the country,
the possibility of occurrence of abundant supply is less, which in turn nullifies the possibility
of considerable fall in the price of the same.

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However, with many new trees in the ground and with nearly one third of the total
number of trees waiting maturity, the supply of avocado is expected to rise consistently after
some years, the effects of which can be shown with the help of the following figure:
Figure 6: Increase in supply of avocado in future
(Source: As created by the author)
As is evident from the above figure, the expected increase in supply (which is
subjective to the climatic conditions of the country) if gets realized in future and the demand
remains the same, then the price of avocado can fall in the coming years (Friedman 2017).
Conclusion
From the above discussion it is found that the demand and the supply of avocados in
the Australian market, in the contemporary situations have been increasing considerably,
thereby leading to huge dynamics in the market. There exists an expectation of a fall in price
of the same as more trees are being planted to increase the supply. However, the expectation

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may not be realized in the near future with the steady increase in regular demand of the fruit,
to cater to which the supply also needs to be evenly distributed throughout the year, the
absence of which may lead to market distortions like that of excess demand or excess supply.
With both the demand and supply of avocados being projected to grow in the long run, the
long run price of the fruit cannot be accurately predicted.

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References
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Becker, G.S., 2017. Economic theory. Routledge.
Friedman, M., 2017. Price theory. Routledge.
Hall, R.E. and Lieberman, M., 2012. Microeconomics: Principles and applications. Cengage
Learning.
Mazhar, M., Joyce, D.C., Taylor, L., Hofman, P.J., Petty, J. and Symonds, N., 2014, August.
Skin spotting situation at retail level in Australian avocados. In XXIX International
Horticultural Congress on Horticulture: Sustaining Lives, Livelihoods and Landscapes
(IHC2014): 1120 (pp. 171-176).
McInnes, W. (2018). Avocado prices will not drop, industry expert says. [online] The Sydney
Morning Herald. Available at: https://www.smh.com.au/business/companies/avocado-prices-
will-not-drop-industry-expert-says-20171113-gzjx4p.html [Accessed 23 Apr. 2018].
Nicholson, W. and Snyder, C.M., 2014. Intermediate microeconomics and its application.
Cengage Learning.
Thenewdaily.com.au (2018). Australia growing avocados in record numbers. [online] The
New Daily. Available at: https://thenewdaily.com.au/life/eat-drink/2017/10/31/avocado-
smash-supply-prices-australia/ [Accessed 23 Apr. 2018].