Archive forsupply

Chocolate prices are Rising

Hershey and Mars take up 2/3 of the chocolate industry in the U.S. and they both decided that prices are going to increase, as much as 7% on each chocolate bar. If both of these companies decided to form a cartel they would be able to because they hold 2/3 of the whole market. There is also a coco supply problem that is happening in South Africa. Since the supply is decreasing it causes a spike in the price of chocolate.


OPEC to reduce oil production

This article is about OPEC members, acting as a cartel, under Saudi Arabia’s coercion, try to reach a deal on cutting on production.

The organization pledged to remove 1.2 millions barrels of oil a day from global oil production if non-OPEC countries, like Russia, increase their production.

This action will eventually lead to a rise in the oil price to above $50, even above $60 within weeks, per barrel due to a great decrease in the supply of oil, as much as 2% of global production. It may mark the beginning of the end of a two-year glut in the world’s oil market.

Since September, Saudi Arabia’s oil minister and his Iranian counterpart have been engaging in a game of brinkmanship that, if failed, would push the price of oil below $40 a barrel. However, Saudi Arabia was wise enough to realize that pragmatism is the best choice, so it chose to cut down 4.6% of its oil production, and so did other OPEC members.

The cut will take effect on January 1st, and it will greatly reduce the global oil inventories next year. Non-OPEC output has fallen this year, adding more impetus to the cartel’s efforts. If oil production decreases and oil price increases, America shale producers will have the incentive to produce more output, but their ability to produce low-cost oil has been exaggerated, so this may not happen as very swiftly and easily as it is said. Nonetheless, many shale producers have been standing still, despite OPEC’s many efforts to kill them. The cartel, after all, haven’t been able to declare even a Pyrrhic victory from the past two years.


Labour Falls, Price Rises

Following Brexit,The UK is currently having less food choice and higher food prices because the supply curve is moving to leftwards and upwards while the demand curve is moving rightwards and upwards.

Many food and drink association have claimed that EU workers, who play an important role in the supply chain, are already leaving because they are ambiguously assured about their right to remain in the UK. The EU workers are only one-third of the number of workers in the industry, but they are generally skillful and high quality workers. They are also highly flexible and can provide the UK with a large number of skilled, semi-skilled and even unskilled labour in the long-term. EU workers  possess a lot of skills that cannot be found in UK workers. It is very often that companies have to look into the Europe continent for food engineers and skill labour; farms also rely on unskilled workers coming from other parts of the EU. Not enough graduates are coming through from UK universities, argued Nestle chair Dame Fiona Kendrick, who is also president of the Food and Drink Federation. She even said that, “We just can’t find the people in the UK to do the jobs,”

With Brexit and its subsequent fall of the value of the pound, the UK’s economy in general and the food security in specific are at risk as trade associations have warned. Thus, this industry’s importance should be as equally considered and recognised by the government as financial or automotive sectors, for the sake of the UK’s “economic and physical wellbeing”.

While there is this problem in the food industry, the Home Office, in respone, said the UK government needs and is trying to diliver a fair and controlled immigration policy and wants to see the net immigration to the UK fall down to sustainable levels while making sure that all voices are heard. Still, it is a very complex issue.



Avocado Prices

This article by Lara Webster very clearly shows the economics going on behind the avocado market right now. The demand for avocados has steadily increased in the past 10-15 years and is expected to keep increasing. However, there is a relatively low supply of avocados. The article says that there is an expected increase in the supply of avocados to respond to the high demand for them. The demand continues to increase because of the new health benefits that have been found in avocados. The article also points out how since avocados are such a unique fruit, there are little substitutes for them so consumer demand for them is relatively inelastic.

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E-reader Market In Relation To The Rise of Apps and iPads

An E-reader is an appealing good because it gives consumers the opportunity to gain access to numerous e-books and there are even other features such as free samples of novels, the ability to highlight quotations, and some e-readers are able to even lend out books among users. The biggest competitive advantage regarding E-readers would have to be its usefulness – it is very portable and allows consumers to have the access to countless books. However, in actuality they only need to carry one “book” (the E-reader) around with them, which is not only far easier, but also more sustainable.  It is worth noting the undeniable influence that technological innovation has had in this market; for example, some consumers do not technically own a traditional E-reader, but use their Ipads (or tablets) to download virtual eBooks. E-readers can appeal to people from all ages and backgrounds since reading is a timeless activity and can serve many purposes ranging from educational to enjoyment. E-readers are not necessarily cheap, but the goal is to be able to invest in one for at least several years.

There has also been the entry of more substitute products, such as the Kobo and Ipad minis. These specific substitute products also illustrate a decrease in prices since they are both cheaper alternatives than previous models (Kobo is a cheaper alternative to Amazon’s Kindle, while Ipad minis are cheaper and more portable than Ipads); therefore, the demand of the E-reader market goes down.

It is necessary to note apps’ dominance in the technology industry; in fact, Apple’s App Store now offers over 225,000 apps for sale. This is actually detrimental to the demand for E-reader devices (even including Ipads) because now consumers are less willing to invest in purchasing these types of products, since they could just easily download apps on their smartphones where they can utilize virtual eBooks. Ultimately, the most influential shock to this market was the apps because it changed the way people access eBooks because now they do not even always see a need to purchase an E-reader device, or even an Ipad, anymore.



Negative Externalities from Cigarettes and Second-hand Smoke

Cigarette consumers vary greatly regarding age and culture, yet most people who consistently consume cigarettes ultimately become addicted due to nicotine. Younger generations are notorious for buying this commodity in order to appear cool, which ultimately turns into a habitual purchase as a coping mechanism, while older generations typically have developed an addiction to smoking. The tobacco industry is a relatively strong one that is willing to conceal the obvious health risks associated with smoking.

One external cost that has historically not been taken into account  would be second-hand smoke and its associated health risks. It is worth noting that the adult population of American smokers has reached an all time low. From 2005 to 2013, the quantity of smokers decreased from “45.1 million to 42.1 million” (1) despite the US population increasing over the last decade. Possible contributions to this overall decrease include the increase in the prices of cigarettes, raising the taxes of cigarettes, and more “smoke-free” laws (1). Although, Centers for Disease Control and Prevention estimates that there is still more progress that must be made since “over 5.5 million kids who are alive today will die prematurely from tobacco-related diseases” (1).

There are many dangerous consequences that are directly related to the tobacco industry’s main negative externality (second-hand smoke) especially for children whose bodies are still developing. The U.S. Surgeon General’s Report from 2006 declared that second-hand smoke is a “known cause of low birth weight, Sudden Infant Death Syndrome (SIDS), asthma, bronchitis, pneumonia, middle ear infection, and other diseases” (2). One of the most thought-provoking things about second-hand smoke is that these health issues that can arise from the exposure to it are preventable for children, and this is something that society has begun to recognize. Now, women are more informed about the dangers of smoking while pregnant, and this is crucial to targeting second-hand smoke exposure. Also, timing is another factor because studies have shown that the sooner the amount of second-hand smoke exposure decreases for a child, the less likely the child is to develop an addiction to smoking as a teenager or adult.



Why Dairy Demand Has Become More Elastic

Historically, the demand for dairy has been relatively inelastic. This is because in the past, the government was a huge customer for products such as milk, butter, and cheese. The government consumption of the product has gone down significantly. Cheese has stayed inelastic, but butter and milk are becoming more elastic as substitutes get more popular. Restaurants and fast-food places have helped drive the fluctuation by serving less dairy intensive products, like pizza or cheeseburgers, when prices get too high. Along with this and the price going up in stores, the demand decreases and a new equilibrium is reached.

Even though an equilibrium is eventually reached, the rise of elasticity in dairy products will most likely increase substitutes for a cheaper alternative. The dairy business could lose more money than planned because of the more stable prices of the substitutes.

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Rideshare Apps Taxed

Uber has become increasingly popular in many Latin American nations. “In just two years in Mexico City, the ride sharing giant has become an integral part of urban life, with around 50,000 drivers navigating the megacity.” Mexico City was the perfect place to implement Uber because it has low rise housing across an urban sprawl. Another reason why Uber has been so sucessfull in Mexico City is due to tradtional street taxis being assocaited with kidnappings. Since Uber provides many safety features for it’s users, it has been able to attract many consumers. Altouugh Uber is such a huge success, many tradtional taxi companies view it as threat to their businesses which is why in Mexico City imposes taxes on rideshare apps. Up to 1.5% of revenue for rideshare apps is taxed by the Mexican goverment. While demand is increasing for Uber, it is a threat to other businesses which is why the goverment taxes Uber.


Bacon Lovers are Being Socked in the Piggy Bank

In 2014 a virus swept through 30 U.S. states killing millions of pigs. These deaths caused many pig industry members to shut down their businesses, leading to a decrease in the supply of bacon. This sudden decrease of healthy pigs caused a shortage in bacon, a good that has high demand. This high demand and sudden shortage caused prices to respond and bacon prices skyrocketed to $6.11 dollars per pound. This large increase in price put a lot of pressure on butchers and restauranteurs.

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A380 Super-Jumbo

The Airbus A380 is the worlds largest passenger plane and was thought to be the future of aviation. Emirates, a Dubai based airline, owns 86 of these monster jets which equates to almost half of the world’s supply. Demand for flights through Dubai, the “super-connector” airport once seemed insatiable. Positioned halfway between Asia and Europe, the airport offered connecting flights to Cape Town, Cairo, Moscow and Shanghai. With soaring passenger volume through Dubai high demand for flights airlines such as Emirates purchased a string of Airbus A380s beginning in 2008 attempting to maximize profits through airline ticket sales.

Over the past year, problems have mounted. Low oil prices have impacted the neighboring economies and reduced regular regional travel. Also terrorism in cities and airports have dampened tourism.

This external shock has caused a decrease in demand for flights out of Dubai. This decrease in demand has caused Emirates to slash ticket prices in order to fill the seats on the Airbus. Profits have decreased also The states that “earnings have tumbled by 75%.” Airbus is on the hunt for new buyers in big markets where demand is far greater such as China and Japan.

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