. If you can, please use demand and supply models to explain and illustrate the factors affecting olive prices and articulate the determinants that lead to price changes.
2. the demand for fresh olives in New Zealand is elastic or inelastic?
3. Based on the analysis in question 2, illustrate graphically what will happen to the total revenue of the farmers following the change in the equilibrium price of olives.
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Extreme weather and the spread of the disease have seen some North Island olive growers ditch harvesting altogether this season. The country’s 300 or so olive farms have been crunching the numbers from harvest which runs from late March through to July.
Olives New Zealand executive officer Emma Glover said heavy rainfall, low sunshine hours and Cyclone Gabrielle resulted in lower yields which will have flow on effects for olive oil supply. She said many smaller, hobby-type growers, who contribute to New Zealand extra virgin olive oil pool, have been hit hard this season. “What we’re finding is because of wet there’s been a lot more disease in the trees pre harvest, so smaller growers just haven’t bothered harvesting this year,” Glover said. “The cost just wasn’t worth it for them when they had low volume of product – so I guess that’s where it’s fallen out.
“It is really disappointing, but it’s been tough,” she said. Unfortunately, fungal fruit disease anthracnose has affected around a third of local olive production, she said. It was seen as the worst disease for olive fruit globally, spreading easily in warm and wet weather – and rotting the fruit from the inside out. “Anthracnose is one of the bigger problems. A lot of groves across the country, especially in the North Island, that have never seen it in the grove before, have got it quite badly and that affects the fruit. Fruit that’s got anthracnose in it, it ruins the oil, so you can’t produce it. “Oil that I’ve received to go get certified to be extra virgin olive oil is down on numbers probably about a third compared to last year at this stage, but I’m hoping there will be some late oil coming through.”
Global prices for olive oil continue to rise after heat and drought hit the Mediterranean earlier this year, especially in Spain which has resulted in a smaller supply. Glover said she expected consumer prices for olive oil to continue to rise while Europe holds low volumes of oil and Australian growers also reported a difficult season with lower yields.
Factors Affecting Olive Prices: A Demand and Supply Analysis
Olive prices in New Zealand, like any other commodity, are influenced by various factors that can be explained using demand and supply models. This essay will discuss these factors and their impact on olive prices, analyze the elasticity of demand for fresh olives in New Zealand, and illustrate the changes in total revenue for olive farmers following a shift in the equilibrium price of olives.
Olive prices are determined by the interaction of demand and supply in the market. Several factors can affect both the demand and supply of olives, leading to changes in their prices:
Weather Conditions: Extreme weather, such as heavy rainfall, low sunshine hours, and cyclones, can significantly impact olive production. These adverse weather conditions can lead to lower yields, as seen in the case of New Zealand. Reduced supply due to unfavorable weather conditions can push prices higher.
Disease Outbreaks: The presence of diseases like anthracnose can devastate olive groves and reduce the quality and quantity of olive production. This affects the supply of fresh olives and can lead to higher prices if demand remains constant.
Global Supply: Olive prices are also influenced by global supply conditions. For example, a decrease in olive oil production in the Mediterranean region, caused by factors like heat and drought, can lead to a smaller supply of olive oil in the global market. This reduction in supply can drive up prices internationally, affecting local prices in New Zealand.
Consumer Preferences: Changes in consumer preferences, such as increased awareness of the health benefits of olive oil, can boost demand for olives and olive-based products. This increased demand can lead to higher prices.
Production Costs: The cost of producing olives, including factors like labor, fertilizers, and equipment, can impact supply. If production costs rise, growers may reduce supply or seek higher prices to maintain profitability.
Trade Policies: Import and export policies, tariffs, and trade agreements can also influence the availability of olives in the domestic market. Changes in trade policies can affect the supply of olives and, consequently, their prices.
The elasticity of demand measures how responsive the quantity demanded is to changes in price. If the demand for fresh olives in New Zealand is elastic, it means that consumers are relatively responsive to price changes. Conversely, if it is inelastic, consumers are less responsive to price changes.
To determine whether the demand for fresh olives in New Zealand is elastic or inelastic, data on price changes and corresponding quantity demanded changes would be needed. Generally, fresh produce like olives tends to have relatively inelastic demand, as consumers may not dramatically adjust their olive consumption in response to price fluctuations. People who enjoy olives are likely to continue buying them despite price increases, to a certain extent.
To illustrate what happens to the total revenue of olive farmers following a change in the equilibrium price of olives, we can use a simple demand and supply graph. If the demand for olives is inelastic, an increase in price will lead to a proportionally smaller decrease in quantity demanded. As a result, total revenue for farmers will increase because the percentage increase in price outweighs the percentage decrease in quantity demanded.
The price of olives in New Zealand is subject to various factors, including weather conditions, disease outbreaks, global supply, consumer preferences, production costs, and trade policies. Understanding the elasticity of demand is crucial for predicting how price changes affect total revenue for olive farmers. In times of adverse conditions like disease outbreaks or global supply shortages, farmers may benefit from higher prices, provided that demand remains relatively inelastic.
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