Economics Report: Impact of Sheep Farming on the Lamb Market Dynamics

This report analyzes the economics of the lamb market, focusing on the impact of sheep farmers' decisions to increase flock sizes on the supply and price of lamb. The report examines how a decrease in supply, caused by farmers retaining sheep, leads to increased prices and potential challenges for abattoirs. The analysis includes a graphical representation of the supply and demand dynamics, illustrating the shift in the supply curve and the resulting changes in equilibrium quantity and price. The report references key economic principles and relevant literature to support its findings, highlighting the interplay between supply, demand, and market forces within the lamb industry. It also touches upon the potential future implications of increased flock sizes and the need for adequate processing capacity.

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Question 1
The key message conveyed from the article is that the farmers are expected to sell lower
number of sheep as they are looking to enhance their flocks at a time when the grain prices
are low and hence it is favourable for the farmers to maintain bigger flocks. As a result, it is
expected that some abattoirs may close down due to limited availability of lamb and that too
at higher prices (jasper, 2017).
The above decision by the sheep farmers would have significant impact on the market of
lamb. This is because it is a commodity whose price is governed by the underlying demand
and supply forces. IF the farmers would enhance the flock size, then lower number of sheep
would be sold and slaughtered. Hence, there would be a decrease in the supply which is
expected to lead to a surge in the prices of lamb and associated products (Arnold, 2017). This
is also aided by the demand remaining constant which has been the case over the previous
five years when despite the surge in prices, the consumption of lamb has not dropped (Jasper,
2017).
Question 2
The requisite graph to capture the above situation is shown below.

It is apparent from the above graph that the decision to enhance the flock size by farmers is
expected to decrease the supply of lamb. Since the supply is being impacted by a non-price
factor, hence there would a shift in the supply curve from S to S1 as shown above. Based on
the given article, it is apparent that demand of lamb remains strong and is not deterred by
prices. As a result, the demand of the lamb remains constant. The net result is that there is a
decrease in equilibrium quantity from Q to Q1 (Arnold, 2017). Also, there is an increase in
the resultant prices of lamb from P to P1. Owing to increases prices of lamb, the abattoirs
may face margin pressure and hence are closing down. A concern expected in the article
relates to the future when the incremental flock would enter supply but may lack enough
capacity in the form of abattoirs which may lead to crash in prices owing to over-supply
(Mankiw, Mankiw and Taylor, 2016).

References
Arnold, A.R. (2017) Microeconomics. 9th edn. Sydney: Cengage Learning.
Jasper, C. (2017) Lamb prices expected to rise as farmers keep sheep at home to re-stock,
[Online] Available at http://www.abc.net.au/news/rural/rural-news/2017-04-10/lamb-prices-
expected-to-rise-as-farmers-keep-sheep-at-home/8431218 [Assessed September 8, 2018]
Mankiw, G.N., Mankiw, G.N. and Taylor, P. (2016) Microeconomics. 5th edn. Sydney:
Cengage Learning.