Archive forsupply

Top video game prices may increase in price

link: http://www.nbcnews.com/id/3078404/ns/technology_and_science-games/t/top-video-games-may-soon-cost-more/#.WA0Dw_orJPY

Article published by Tom Loftus for msnbc.com in June 2013

Constantly evolving development costs of video games are predicted to increase the price of top-sellers. There are a multitude of increasing costs that go into video game development – more complicated coding, more development team members, higher quality team members, etc. – that derive from the need to meet the capabilities of increasingly sophisticated gaming technology. These higher input costs lead to a decrease in supply (less quantity supplied and greater price willing to sell for).

Another concept that is presented is the “life cycle” model, which illustrates the price fluctuations of gaming consoles, which are complements to video games. A few years after a console’s initial release, when the development teams are able to shift to production of a new console with more sophisticated technology, the price of the initial console is significantly lowered. This is when over 50% of console sales occur. Thus, during this time, lowered sale prices result in a higher demand (greater quantity demanded and greater price willing to buy for).

The stated average cost of a Triple-A game (games with the highest development budgets and levels of promotion; expected to be high-quality bestsellers) is stated to be $49.99/game. These are the games that are expected to rake in over 50% of game sales. The decrease in supply and increase in demand should result in an unknown new equilibrium quantity and a greater equilibrium price, what is estimated to be closer to $60/game. However, game producers are not raising their prices because they believe that as long as the quantity demanded increases, then they’ll be able to sustain their market. Demand has been shown to increase considerably over the years as gaming grows into mainstream media and the market expands, so producers aren’t wrong in their assumption of increasing consumer demand. However, they are naïve in that they do not recognize that buyers would also be more than willing to pay a raised price for a higher-quality game, and that sustaining or lowering prices might signal to buyers that the game is of a lesser quality. The resistance to raise prices has resulted in a shortage, since quantity demanded is greater than quantity supplied.

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Example of demand and supply movement: Wool Price

The price of wool faced a decline since 1985 because of technology innovation that leads to a decrease in demand. The technology innovations are cotton and synthetic fabrics. More buyers shifted their demand in buying wool to buying cotton and synthetic fabrics, which benefited them in a better deal. The shift in the demand curve cause movement along the supply curve, and thus resulted in a lower price.

In 2016, the price of wool increased after 30 years of decline. This increase of price resulted from a harsh winter and less feed, which leads to a decrease in supply shifting the supply curve to the left. The shift in the supply curve cause movement along the demand curve, and thus resulted in a higher wool price.

Link: http://www.stuff.co.nz/business/farming/sheep/76146110/Wool-prices-on-the-riseFullSizeRender

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Coffee Beans Prices Rise Due To Limited Supply

Coffee has become one of the most sought after commodities in the United States today and it doesn’t seem like that trend is going to stop anytime soon. Coffee Bean prices have soared over the past few years due to many contributing factors, including coffee being introduced into new countries, demand increasing in the United States exclusively, and, most importantly, the limited supply due to coffee plantations having down years due to extreme weather. Since some of the plantations growing robusta beans have had a down year, the supply of coffee beans will be decreased and the price will rise without a doubt. On a graph, the supply curve will shift upward causing the quantity to decrease and the price of the commodity to increase. Depending on how severe the weather was, the supply curve could shift up a significant amount or vice versa. The higher the supply curve will shift, the higher the equilibrium price will be. On top of that, global supply has been significantly lower than the past because the demand of coffee has been significantly higher. This will push the price even higher because on top of the new supply being limited, the already existing supply has been limited. Overall, the demand for coffee will not decrease because in the United States people will continue to spend money on the product even though the price will continue to rise. In fact, Citi predicts that, “prices could reach $1.50 by the second half of 2017.” which portrays the rising prices in coffee beans in the next year.

Americans’ Coffee Guzzling Is Pushing Bean Prices Higher

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The Decrease In Consumption of Milk

The article I read described how the decrease in the consumption of milk is causing current milk prices to crash. This is due to the fact that now of days milk is something still highly produced, but most people don’t really drink anymore, because many people have replaced milk over time with other beverages such soda, juice, bottled water, and coffee.  The article states how the current crash in the milk market doesn’t really have a profound affect on supermarkets, but for farmers this crash has caused a significant impact on them, especially since they’re now receiving 40 percent less than what they received two years ago when milk prices were are at an all-time high. A lot of farmers have begun protesting for their plight. The article even took the crash in the milk market and compared it to oil, because it’s a good that can be traded around the world and its prices can crash or boom due to many different  political and economic reasons taking place in so many countries. The crash has become so alarming that members of Congress have asked the U.S. Department of Agriculture to buy extra milk products in order to control the oversupply and help the prices.

With that being said if I were going to graph this information it would show a shift of the demand curve, but not the supply curve because milk is still heavily supplied, but consumers are not drinking as much milk as they once were which would cause a decrease in the equilibrium price.

http://www.npr.org/sections/thesalt/2016/08/05/488708017/why-do-milk-prices-spike-and-crash-because-its-like-oil

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Wheat prices reach 22-month high

Russia, one of the largest exporters of wheat,(about 25% of world supply in wheat) was experiencing devastating weather conditions in 2010. Those weather conditions seriously affected the price and supply of wheat. Supply went down, price went up.russia-wheat-fire

A severe drought and devastating wildfire in Russia cause the price of wheat to go up. The price rose by 50%, going from 3.50 to 7.00 $/per bushel.This happened in June and continued in the September of that year. However, according to the Russian minister of Agriculture, the price will fall soon, as Russian will use the grain reserves to supply the global markets.

Still, there was growing concern about not only rise of wheat price, but also food made from wheat, such as bread. The rise of wheat price would likely to result in increasing in price of these of foods.

 

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Saudi Arabia is Winning its War Against The U.S. Oil Industry

saudi-arabia-is-winning-its-war-against-the-u-s-oil-industry

Did you notice when gas prices dropped shockingly low towards the beginning of this year? Probably. But did you know that this sudden decrease in the price of oil was orchestrated purposely by Saudi Arabia? Saudi Arabia, as you all know, is a card-carrying-member of OPEC and has the largest oil reserves in the world. In 2014, the fracking revolution lead to a surge of U.S. crude oil to enter the market, cutting into Saudi Arabia’s share of the oil market. In order to sabotage the U.S.’s shale oil industry, and to reclaim their profits, Saudi Arabia turned their taps full-blast and increased their production of oil to drive the price down and send U.S. oil companies out of business. Saudi Arabia’s manipulation is an example of a shift of the supply curve of oil by a change in the opportunity cost. Saudi Arabia was able to shift the supply curve to the right (increase oil supply) because their opportunity cost of drilling for oil decreased. Saudi Arabia realized that the cost of selling their oil below market price is less than the potential loss of profits with competing with U.S. crude companies.

 

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Effects of Fracking on Supply and Demand

Economic Gravity on the Oil Industry

This article examines the drop in oil prices in April 2016. The author examines the price drop of oil from 100$ per barrel to 45$ per barrel over the course of multiple years. This is an example of how technological innovations can decrease the price of oil and therefore shift the supply curve of this commodity. The success rate for drilling for oil went up due to the recent innovation in fracking. This boosted the odds from 10% to 90% for striking oil when digging. This increases the overall supply of the commodity. Additionally, the opportunity cost is lowered because of this technological innovation because it is less risky to drill for oil because there are now higher success rates, overall shifting the supply curve upwards. The drop in price, while good for the consumer, forces some of the producers, like the oil company BP, to cut back on their laborers, as the article states. A decrease in oil prices means a shift along the demand curve for oil, due to the drop by approximately 80% in the price.

 

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Gasoline Price and Vehicle Preferences

The price of gasoline has a huge effect on the vehicle market. When the gasoline prices rise consumers shift their preferences towards smaller lighter, and demand for heavier cars decreases. The article goes over several examples throughout the time which demonstrate the phenomenon. In 2005 the prices of gasoline rose significantly because of Hurricane Katrina, during that year the cars, in contrast with SUV’s,  constituted an increased amount of new vehicles bought that year.  This article demonstrates concept of complement goods and relationship between their prices and demands. Gasoline and SUV’s are complements, if demand for SUV’s goes up the demand for gasoline will also rise, but when the price of the gasoline rises the demand for the SUV’s decreases and consumer tastes shift toward lighter cars which use less gasoline. This article also shows how company’s raise prices of a product when they foresee an increase in demand. In this case Hurricane Katrina created an increased demand for gasoline,  a wave of people with higher willingness to pay for gasoline just entered market and Gasoline companies responded by raising  the prices.

Link to the article: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/88xx/doc8893/chapter2.6.1.shtml

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Exogenous Shock in Avocado Supply

Article from Los Angeles Times: http://www.latimes.com/food/dailydish/la-dd-avocados-20160628-snap-story.html

During the summer of 2016, Los Angeles suffered an extreme heat wave accompanied by an ongoing severe drought. The United States is one of the top five avocados producing countries in the world and 90% of avocados in the United States are grown and produced in California. Avocados take a large amount of water to grow and due to the increased price of water in Southern California, avocados become very costly to grow. The demand for avocados began to increase as millennial shoppers are becoming more health-conscious and began consuming more avocados especially in the summertime. The increasing popularity of the fruit combined with the decrease in number of avocados being produced caused the prices to skyrocket (short supply and high demand). The heat wave in effect with the drought in California caused an exogenous shock of prices in the avocado market.

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US Inches Toward Energy Independence in America

https://lms.dickinson.edu/pluginfile.php/915416/mod_resource/content/1/Krauss_US%20Inches%20Towards%20Energy%20Independence%20in%20America%20-%20The%20New%20York%20Times.pdf

This article (from 2012) talks about the rising prices of oil and how the rising prices has increased supply. Interestingly, consumption has decreased due to the high prices. What does that mean is being done with the oil so much more is being produced?

The article mentions that supply of AMERICAN oil has increased, and that the US is importing less of it. Certainly it is possible that more oil is being extracted now than ever, but we simply need to realize that this exists where we are pursuing a sort of national energy independence.

The article continues to question the way that President Obama had handled the pressing issue of climate change thus far. Sustainability is social, economic, and environmental, and it appears that the environmental aspect has been forgone for an increase in economic success among producers.

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