Impact of Supply Shocks and Demand Shifts on the Avocado Market

This report provides an economic analysis of the avocado market, examining the interplay of supply and demand dynamics. It begins by highlighting the current market scenario, including the supply shortage in some regions and the stable supply in others. The report then applies fundamental economic concepts, such as supply and demand, equilibrium, and the impact of supply shocks and changes in demand, to explain market behavior. It discusses how factors like droughts, strikes, and increased demand in countries like the US and China affect prices and quantities. The analysis includes graphical representations to illustrate shifts in supply and demand curves. Finally, the report concludes by summarizing the key findings, offering a clear understanding of the avocado market's behavior and the economic forces that shape it. The analysis references the works of Baumol & Blinder and Rader to support its claims.

Principles of
Economics
Name of the Student
Name of the University
Author note

Introduction
• Avocado in Australia
• Assurance of no supply shortage
• Avocado shortage in California, Mexico and Peru
• Increased demand in US and China
• Stable price in Australia
• Sufficient supply in Australia
• Possibility of increased demand from Asia

Economic Concepts
• Demand and supply
• Demand; desire to buy backed by purchasing power
• Supply: amount of goods available in the market (Baumol & Blinder,
2015).
• Supply shortage; situation where demand exceeds supply
• Change in demand; increase or decrease in demand
• Increase in demand; causes outward shift in demand curve (Rader, 2014).
• Cause of change; factors other than price

Demand, Supply and
Equilibrium
Figure 1: Demand, Supply and equilibrium in
Avocado market
• DD shows demand
curve
• SS shows supply curve
• Equilibrium at E
• Price P* and Quantity
Q*

Demand, Supply and
Equilibrium
• Demand of avocado; depends on average consumption
• Average consumption 3.2kg
• Steady supply
• Import from New Zealand
• Ample production from Queensland and Western Australia
• Produce avocado all the year round
• Equilibrium; where demand and supply intersects
• Stable price; Stay around $2.80 to $ 3.00

Supply shocks
Figure 2: Supply shocks and its impact in
the market
Initial demand curve
D1D1
Initial supply curve
S1S1
E is the equilibrium
Supply shocks
Supply curve shifts to
S2S2
Price rises; P1 to P2
Quantity declines; Q1
to Q2

Supply shocks
• Supply shocks
• Sudden change in supply
• California, Mexico and Peru
• Different external factors
• Drought, grower’s strike and flood
• Affect Supply
• Supply curve shifts inwards
• Price increases and quantity declines
• Shortage of supply

Change in Demand
Figure 3: Effect of an increase
in demand
• An increase in demand
• Shifts the demand curve rightward
• DD to D1D1
• Price increases to P2
• Equilibrium quantity increases to
Q2

Change in Demand
• Change in demand
• Shift of the demand curve as against movement along the demand curve
• Caused by factors other than price
• Demand curve shifts either inward or outward
• US and China experience an increase in avocado demand
• Increase in Per capita consumption in US
• 1.6 kg in 2006 to 3.1 percent in 2015
• China has increased consumption demand from Latin America

Change in Demand
• Decline in avocado production in Mexico
• Supply shortage causes a hike in import price
• Asian countries relying on America suffers a shortage.
• This in turn increases avocado demand from Australia
• Demand curve shifts to the right
• Increase in both equilibrium price and quantity

Conclusion
• Market scenario of Avocado
• Evaluation using economic concept
• Demand and Supply
• Equilibrium
• Supply shock and resulted shortage
• Change in demand

References
• Baumol, W. J., & Blinder, A. S. (2015). Microeconomics:
Principles and policy. Cengage Learning.
• Rader, T. (2014). Theory of microeconomics. Academic
Press.