ATMC BUS502: Economics Assignment on Fresh Food and Petrol Prices

This economics assignment analyzes the impact of rising petrol prices on the fresh food market, drawing from an ABC News article. The assignment requires the student to illustrate and explain the effects of fuel price increases and changing consumer tastes on the equilibrium price and quantity of fresh food using supply and demand diagrams. It also explores the concept of "price takers" within a perfectly competitive market structure, detailing its characteristics. Furthermore, the assignment examines the cross-price elasticity of demand, explaining how changes in the price of petrol and subsequent impacts on fresh food prices affect consumer choices, such as the substitution of t-bone steak for sausages. The student provides detailed explanations and diagrams to support their analysis, demonstrating an understanding of economic principles and their application to real-world scenarios.

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ATMC BUS502 Principles of Economics for Accountants
Assessment Task 2 – Responses to articles
Article 3: DUE via Safe Assign 6pm Sunday 2ndJune
Full Name:
Student number:
Tutor’s name:
Article Title:
“High petrol prices may push up the cost of fresh food for consumers”by Nikolai
Beilharzfrom ABC News from 18th October 2018. Available at:
https://www.abc.net.au/news/rural/2018-10-18/rising-petrol-prices-may-push-up-the-cost-of-
fresh-food/10390286
Instructions:
Access the article at the URL given above and read it carefully. Answer the questions and
complete the diagrams in the spaces provided below. Use full sentences. If you use any
references, please list at least the URL of your source. Possible total for this assessment task is
15 marks.

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Question 1
The diagrams below show the market for fresh food. Illustrate and explain what happens to
the equilibrium price and quantity in the following scenarios.
(a) According to the article “a rise in the petrol and diesel prices could also lead to a rise
in the price of fresh foods”.Use the supply and demand diagram below to illustrate and
explain why.
Figure 1.1 Fuel price increase impact on the fresh food marker
It is evident from the graph above that rising fuel costs would contribute to the production
cost rise as fuel costs tend to impact the various raw material costs coupled with logistics
related costs as the produce needs to be transported from one place to other. The net
result is that supply curve would move upwards which is reflected in the above graph. The
short run demand curve does not alter as highlighted in the graph above. Owing to the
supply curve shifting, the equilibrium point would undergo a change. The price
corresponding to the new equilibrium point is P1 which is higher than P* which was the
equilibrium price to begin with. Further, there has been a reduction in the equilibrium
quantity from Q* to Q1.

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(b) According to the article “consumers are also changing what they buy as a result of
high prices”. Use the supply and demand diagram below to illustrate and explain the
effects in the market for fresh food of this change in consumer tastes.
Figure 1.2 Changing consumer taste impact on fresh food market
Owing to fresh food price increasing on account of fuel costs increase, there is a tendency on
the part of the consumers to make a switch towards readymade food which would apparently
appear less expensive. The changes in consumer preferences and a shift to other substitutes
would have an adverse impact on the demand of the fresh goods which would slow down. As a
result, there is a leftward shift in the demand curve (D to D1). This would help in keeping the
rising prices of fresh food in check but the overall quantity consumed would fall on account of
the overall demand for fresh foods coming down.

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Question 2
The article stated that “farmers often say they are price takers.” Explain what this concept
means in term of market structure and analyse at least other three characteristics of this type
of market.
The market structure referred to in the article through the above statement would be a
perfectly competitive market. The farmers in this market are the sellers who are referred to as
price takers as the no individual seller through the economic decision such as price or
production quantity can impact the market. As a result, the price at which the farmers would
sell their produce is dependent on the industry demand and supply forces. As a result, the
farmers are essentially price takers. For the given market structure, the three characteristics
are referred as shown below.
1) Owing to the fragmented nature of the industry, no seller has a sizable market share
leading to negligible market power for any of the sellers.
2) There is no differentiation in product sold as they are homogeneous or same for all
sellers.
3) The entry and exit barriers are practically non-existent for this market structure.
Question 3
According to the article consumers “instead of buying a t-bone steak they might buy
sausages”.Explain in your own words what this means in terms of the cross-price elasticity of
demand.
The cross price elasticity of demand would refer to the impact in quantity demanded for a
given product based on the price change in the other product. As a result, this type of elasticity
tends to impact the relationship between two products. The sign of cross price elasticity is
useful in determining the nature of products. For instance, if the cross price elasticity is
positive, then the underlying products are substitutes. Further, if there is negative cross price
elasticity, then the underlying products would be complements. In the given scenario, owing
to the increasing price of t-bone streak, the consumers would buy more sausages as both these
products are substitutes.