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Economics Assignment: Impact On Vegetable Prices In Australia During Covid-19

Task: You are required to prepare the report on economics assignment analyzing the below scenario and answer the given question: NEWS ARTICLE The Guardian Alyx Gorman Fri 27 Mar 2020 13.16 AEDT Empty fruit and vegetable shelves in an Australian supermarket after panic buying due to the coronavirus outbreak. Wholesale prices of some vegetables have risen dramatically but the coronavirus isn’t to blame for everything. “$11.50 for a kilogram of broccoli and $8 a bunch for fresh celery” The price of some vegetables in Australia has gone up considerably recently. These price increases have led many people to take to social media, accusing major supermarkets and independent retailers of profiteering and price gouging at a time of crisis. However, Shaun Lindhe, the communications manager for peak vegetable growers body AusVeg, suggests that the price increases have more to do with another story, one that has fallen from the headlines in recent weeks: the ongoing, devastating droughts and bushfires that ravaged Australia over the summer. “There’s been a reduced supply as a result of drought,” Lindhe says. “There are also seasonal fluctuations in supply, as production regions transition. "The reduced supply has coincided with panicked shoppers clearing shelves, driving prices even higher. Vegetables are so expensive in Australia at the moment. On 24 March, ACCC chair Rod Sims directly attributed grocery price hikes to “unnecessary panic buying”, saying: “Australia’s supermarkets have experienced unprecedented demand for groceries in recent weeks, both in store and online, which has led to shortages of some products and disruption to delivery services. “In order to meet that demand growers and retailers have been working to try and keep that supply on supermarket shelves,” says Lindhe, “and as a result some of the production costs in terms of labor and transport have gone up.” In January, well before the novel coronavirus crisis hit Australian shores and shifted consumer behavior, growers warned of a 50% increase in vegetable prices. Now a supply shortage is coinciding with a spike in demand. A Woolworth’s spokesperson, meanwhile, says: “Due to pressures throughout the horticultural supply chain caused by drought, unseasonal weather and an unprecedented spike in demand, we’re currently seeing an impact on the availability of some fresh fruit and vegetable lines. This has led to higher wholesale costs for some fruit and vegetable lines across the market.” “The price of vegetables, like many commodities, is set by supply and demand,” says Lindhe. Q1. Using the demand and supply model, explain and illustrate graphically, the statement made in the news article, “why vegetables are so expensive in Australia at the moment”. Q2. (a) Assume vegetables are sold in a perfectly competitive market and firms are making zero economic profit. Explain and illustrate graphically, the effect of increase in price on the short run position of a single firm selling vegetables. (b) Based on the short run position identified in Q2 (a) explains and illustrates graphically effect of entry/exit on the long run position of the firm.

Subject Name: Economics

Level: Undergraduate

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