WHY DO GOVERNMENT HAVE INTERVENTION IN AGRICULTURE?

1. Long gestation period
2. Perishable 
3. supply problems (supply is inelastic) (GOOD CROPS/BAD CROPS) 
4. demand is inelastic. 

This three factors will affect the elasticity of the supply curve to be inelastic. Demand on agricultural goods are also inelastic because it's a necessity to the consumers.Therefore, agricultural goods tend to subject to large price fluctuations. A change in supply(poor crop) will cause a big change in price (increase) but a small change in quantity demanded. Due to a large increase in price, poor consumers are not able to afford. As i said before, the demand is inelastic. Which means agricultural goods has less substitutes and consumers are not able to switch to other alternatives. Therefore, government intervention must comes in in order to help the poor. 

INTERVENTION 

Using price as a control

There are 2 types

• minimum price 
• maximum price

Minimum price is a price that's set above the equilibrium in order to help producers to earn, to make higher profits. We all know if we set prices above the equilibrium it'll create a surplus in the market. The price is too expensive which causes the demand to decrease and many goods will not be sold into the market. One way to solve the surplus, is that government can buy the surplus and use it for other purposes. Besides that, imposing quotas could also prevent surplus so that resources are not wasted. Lastly, producers can start advertising their products more but it may cost a lot as well. Although, setting minimum price might help the producers to earn more. However, goods are wasted if it's not utilized. Minimum is not really a good way to solve the problem. 

Maximum price is a price that's set below the equilibrium in order to help consumers from being charged to high by the producers. We know that setting the price below the equilibrium will create a shortage in the market. The demand will be higher that the goods available. The poor may get the benefit from getting cheap goods but they might not satisfy the goods they want. Good such as food is a necessity for them and if this really happens, many people will be starved to death. Black market will happen as well, since goods are getting lesser in the market, the rich will buy up the goods with higher price in order to satisfy their wants. A way to solve this problem is to have subsidy from he government and this will help reduce shortage and meet a new equilibrium price in the market. 

Buffer Stock Schemes

This a way to fix a particular price of a good. For example, the price for a pear cost Rm5 and the quantity demanded in 40. During bumper season, the supply for pears increase by 50. So now the quantity demanded on pear will be 90 and this will reduce the price of the pears to Rm4. In order to maintain the price at Rm5. The government will buy up the extra 50 pears and do something else with it. The number of pears will reduce back to 40 and the price will remain the same. (: The disadvantages of buffer stock schemes is that agricultural goods like pears does not have long shelf life and it take a lot of money to store them. Raising the price from 4 to 5 by imposing tax will also be a good idea to maintain price as well. Lastly, the government can use the excess supply to cover shortage problems as well. 

Cartel

A cartel is a formal agreement among competing firms. It's a formal organization of producers and manufacturers that agree to fix prices, marketing, and productions. 

CONSUMERS SURPLUS

Sometimes we pay more than we actually needed to pay due to satisfaction. For example, LALA loves spaghetti and for her first spaghetti dish she's willing to pay more than the actual amount BECAUSE SHE LOVES THE BLOODY SPAGHETTI TOO MUCH. So, after a while she went back to eat her favorite  spaghetti. and this time she it's okay with it but still she's willing to pay more. DUE TO HER CRAZY OBSESSION, she went back to the same shop and eat it again. Finally she starts to feel neutral for it because she's bored and tired of the same food everyday. NOW, she only feels like paying the actual amount.

This is a demand diagram showing the consumer surplus

• The part where the consumer is willing to pay is the two region (consumer surplus and total revenue) 
• The part where the consumer actually pay is the total revenue
• Lastly, you know where is the consumer surplus as it's stated above. 

            Getting the consumer surplus is easy: Just use the area of where consumer is willing to pay minus the area where consumers actually pay) :D 

THE CONSUMER SURPLUS CAN CHANGE??????

Yes it does. due to the price elasticity of demand! as well as Change is equilibrium price due to shift of demand or supply curve. 

This shows that as the line gets less "sloppy" the consumer surplus gets lesser! 

OKAY. THE PICTURE IS A BIT RETARDED. The left one is when demand curve shift upwards and the right one is when supply curve shift downwards. 

• As demand curve shift to the right the consumer surplus increases. 
• As supply curve shift to the right the consumer surplus decreases. 

INDIRECT TAX

It's the tax on goods and services. INDIRECT TAX SUCH AS AD VALOREM and SPECIFIC TAX.

The way which Ad Valorem Tax works is as prices of goods and services increase, the tax will get higher. For Specific Tax, the tax remains same at any price of the goods and services. 

Ad Valorem Tax

Specific Tax 

TIME TO EXPLAIN HOW DO TAX WORKS 

At first the original price was B and it's selling at H quantity. After specific tax which is $1, the supply curve shift upwards which increase the price from B to C and decrease the QS from H to G. The new equilibrium price will be C and the new quantity will be G. We know that equilibrium has shifted from E to F. Although, AC is equal to the rise of tax $1 but the consumers only have to pay the price BC.Therefore, the producers have to pay some of the tax as well which is the price AB. Why the producer want to do this?? This is because they want to PREVENT the demand on their goods to decrease A LOT. By paying some of the tax will help reduce the consumer's indirect tax by a little. The total revenue earned by the government will be CFDA ( IT'S IN THE QUANTITY OF OG) 

SUBSIDIES 

Subsidies are financial help given by the government to the producer

which helps reduce the COST OF PRODUCTION 

and INCREASE THE QUANTITY SUPPLIED 

LASTLY DECREASE THE PRICE of goods 

some parts of the price fall is enjoyed by the producers <c.o.p fall> and the other part is enjoyed by the consumers <price decrease>

Price elasticity of supply is the responsiveness of quantity supplied of a good to a change in price. The formula for calculating PeS is PERCENTAGE CHANGE IN QD/PERCENTAGE CHANGE IN P. There are 5 TYPES of PeS graph which is elastic, inelastic, unitary, perfectly elastic and perfectly inelastic. We all know that the supply line is a line where price is proportional to the quantity supplied. For PeS elastic, the supply line cuts the Y-axis. It's known where the change in price is more than proportionate to the change in quantity demanded. Where as the PeS inelastic, the supply line cuts the X-axis. Therefor, the line shows that the change in price is less than proportionate to the change in quantity demanded. Besides that, Unitary supply line happens when the change in price is directly proportionate to the change in quantity demanded. Perfectly elastic line happens when the producer only supply their goods at a particular price, a slight change in price will give a zero value for quantity demanded. Lastly, perfectly inelastic happens when producer decided to fix its quantity supply at whatever prices they set. 

The determinants of PeS Time, length in production process, availability of surplus capacity, the ease of entering into a market. PeS is also known as the ability of a producer to adjust their production.

TIME:

A company can only produce 400 teddy bears a day, but as time passes, the company's efficiency on production went higher due to more or better machines available. Besides that, some teddy bears are hand made. The skills and creativity of the labours may increase as well. This factor will also increase the production on teddy bears in the long run.

LENGTH IN PRODUCTION PROCESS:

Manufacturing goods is categorized under secondary production. We'll know that many of our goods is made from China and it shows that the country is under secondary production Manufacturing goods are known to have an Elastic value for PeS. This is because they can expand their production easily due to the advancement of technology. Besides that, they have a long shelf life( it's non-perishable), the goods that're in surplus will be stored and when there is a high demand, the producers can easily sell these goods in the market. They get to save and earn at the same time. Capital(machines) is one of the factor that could increase the production easily on manufacturing goods. As time passes, the advancement of technology gets better and goods can be produce easily. 3D printing is also available in the market, manufactures can produce hard objects from a 2D image using plastics and other materials. In a matter of minutes, you can produce thousands of it as technology is getting better.

Agriculture goods is categorized under primary production. It's known to have an inelastic value for PeS. This is because, agriculture goods take weeks to be produced. It has a long gestation period due to climate change, as well as pesticides. Sometimes, the weather might be too hot which slows down the production on crops. Labours are widely used in primary production. We all know that many of them a cheap labours and they their income is low. What is they decided to stop working as a farmer and proceed their job to service sectors in order to earn more income. The production will be low again unless technology gets better to overcome this problem. Besides that, Agriculture goods are perishable. Producers can't produce too much of it as it'll get spoil and wasted if it's not consumed. Excess agriculture goods can't be stored too long as well. Sometimes we can change it's variable by drying up the food or putting it in the fridge so that it'll last longer

EXISTENCE OF SURPLUS CAPACITY: 

Some firms can increase their production due to spare machines.

EASE OF ENTRY IN MARKETS:

The smaller the barriers to enter a market, the higher it's ability of a firm to expand it's business and increase it's productivity.

Econs Presentation (Taylor's PRE-U course)

Today is my first presentation regarding Price elasticity of demand on Taylor's Pre-U course (A-level). Throughout the project I learnt a lot about XeD "cross elasticity of demand" (which is what i'm presenting about). I knew more about it and it feels so good.. Well XeD is about the responsiveness of quantity demanded to the change in price of a related good. For Taylor, we did a survey regarding substitute goods and the question was " If Inti reduces it's price by 10% will you still choose Taylor's as your first choice? " Well the value was elastic. It mean if Inti really reduces it's price, the quantity demanded on Taylor's will be low. THIS IS VERY BAD. Well.. to reduce the value of XeD, improving the quality of the environment and students is important. Taylor's will gain its reputation and more people are willing to pay for it. For complementary goods, i'm afraid we can't find any for Taylor's because it's considered a superior good. Nothing can change its quantity demanded. Therefore, the value of XeD is "0" (NO EFFECT). 

From this presentation, I noticed the market really well. If Taylor were to increase it's price by 10 % the quantity demanded is elastic. Besides that, if their budget were to increase by 10% , many of them are not willing to pay for the price in Taylor's. Although the the survey might not be accurate due to many factors but I got a rough idea that many of them are willing to save their parents or their money. Chinese...

For the factors of demand and supply, i didn't manage to look much at it. HOWEVER, i know what are the factors of demand on Taylor's PRE-U course which is location, luxury or necessity, proportion on income, substitute goods and many more. I haven't learn factors of supply yet but will look into it soon (: hehe  

Something that i really regretted during the project was not putting my full skills into it. I didn't put in much effort and i'm very sorry for it ): I should have done something better with the presentation and work well with my teammates ): it's already too late but i think the presentation went well and we got the crowds attention. They were listening and they responded to our explanations (: My teammates were fantastic and i'm glad i had them with me during the journey. I wish my next presentation for A2 will be great and i'm looking forward to it.

Although this is really a brief reflection about the presentation but i'm glad i noticed my weaknesses and i'll work well towards it. Luckily i did something interesting for my group which is comic strip and yea. Thank god for that idea i had from Nelson. (: I hope this is okay and that's all for now! 

So for this week I've learnt about cross elasticity of demand (XeD). It happens when the quantity of good X is affected by the change in price of a related good. There will only be two factors which affects the value of XeD, which is substitute goods and complementary goods. 

SUBSTITUTE GOODS 

1. sign: Positive 
2. If there is an increase in price for Iphone, the quantity demanded of a related good which is samsung will be reduced. If the value of XeD is elastic, this shows that the market is competitive and a raise in price affects the demand a lot. 
3. Ways to prevent it is to improve quality, advertising strategies and many more.

COMPLEMENTARY GOODS

1. sign: Negative
2. If there is an increase in price for petrol, the quantity demanded on cars will be lowered. If the XeD is inelastic, it shows that some people are willing to pay for the raise petrol price. 
3. Sometimes a good may not have complementary goods due to its position. It may be a superior good, nothing can affect the demand of it. Therefore,the sign will be "0" ( no effect).

Price mechanism and Price elasticity

Price mechanism is a manner where prices of good and services affect the demand and supply. It also depends on the situation itself. For example, a good may lack of production due to scarcity and at the same time demand for it is high. These goods usually has intrinsic value and demand for it is very high, such as gold and diamond. Since demand for it is high, producers will set the price higher in order to earn more profit and also eliminating extra demands. Consumers that has higher income will get to purchase it and producers will get tons of money.

As production gets more efficient, due to technology and availability of resources. The average cost of production will be lower and prices of these goods and services will be lower as well. Consumers are able to afford these goods because it's cheap. Usually people wont buy expensive things unless it's a luxury good. If producers understand that their product is too expensive for most of their consumers, they will reduce their price in order to satisfy the market.

Sometimes the price for a particular good produced will signal the producers what the consumers want.Since the goods is cheap, demand will definitely be high. Therefore, shortage might happen. The producers will either increase their price or increase production for that particular good. Conclusion, price mechanism help producers to set their price correctly according to the situation given. THAT'S ALL!

Price elasticity of demand is the responsiveness of the quantity demanded over the change in price. The two main types that I've learnt throughout this week for PeD (Price elasticity of demand) is Elastic and inelastic.

Elastic using happens when the %change in quantity demand/ % change in price is: >1

As you can see this is a demand line. A change in price would change the quantity demanded. For example, the price raise from $0.75 to $1.00 (33% is the % change in price) . The quantity demanded will decreased from 9 to 3 (67% is the % change for quantity demanded). We can conclude that when 67% is divided by 33 the value will be 2.01. It is more than 1. Therefore it's elastic (:  since elastic is more than one therefore inelastic is less than one(<1).

This is an inelastic demand curve and the difference between elastic and inelastic demand curve is the steepness of the graph as well. Inelastic is steeper than elastic. 

The tile above says it all. For this particular graph, the change in price is proportional to the change in quantity demand. That's why the PeD for it is equals to 1.

This is a Perfectly elastic demand line. The PeD is infinite and if there is a slight change in price, the demand will go zero. This graph shows that consumers only accept that particular price. 

This is a perfectly inelastic demand line. The PeD is zero and a slight change in price will not affect the quantity demanded. Consumers will accept any price for this particular good. 

Every point from this line has different elasticity. The top of the line will be elastic, middle will be 1 and the end will be inelastic. 

Factors affecting elasticity of a particular goods and services: 

1. Number of substitutes: The more the substitutes of a good, demand for it will be elastic. 
2. Degree of necessity: A good might be our basic needs and the increase in price wouldn't have much  changes for the quantity demanded. Therefore the demand is inelastic.
3. Proportion of income(y): Some goods play a big role in our income and some doesn't. For people who has high income, an increase in price for food will not affect much for him. This is because food might only take up very little proportion from his income. Therefore, the demand for it is inelastic. 
4. Time: The longer the time, the more elastic a good can become. This is due to change in taste, technology, other cheaper substitute goods coming in. 
5. Habit forming: For example getting addicted. A person will do whatever it takes to get a pack of cigarettes because he's addicted to it. An increase in price for cigarettes will not affect much for the demand. Therefore, the demand in inelastic.

Income Elasticity of demand (YeD) 

The responsiveness of the quantity demanded over the change in income. 

• When income increases, the quantity demanded will increase. The relationship where both a directly proportional to each other gives a (+VE) value. (normal goods)
• When income increase , the quantity demanded will decrease. The relationship where both are inversely proportional to each other gives a (-VE) value. (inferior goods) 

Factors affecting (YeD)

• Proportion from the income. 
• Degree of necessities 

This week I've learnt a lot about the demand and supply curves. Things like.. how they link with each other, and how the price of goods and services affects these curves (vice versa). 
The definition for demand is the amount of goods and services that consumers are willing and able to buy at various prices over a period of time. Where as, effective demand is the ability of a consumer to buy these good and services. For example: A person who has high disposable income is able to purchase more goods compare to those that has low disposable income. The amount of money a person earns will show their level of ability to buy the G&S they want. 

This an example of a demand curve: 

Every single one of us would want to buy the cheapest possible goods we want. As you can see, the demand curve diagram here shows it all. When the Price is $0.50 the quantity demanded is 100. However, when the Price is $0.20 the quantity demanded is 400. The demand curve(although this is a straight line) is a downwards slopping curve and it show's the inverse relationship between price and quantity demanded. The lower the price, the more the quantity demanded. A change in price would change the quantity demanded and it involves the movement along the demand curve. 

Shifting of demand curve happens when other factors affecting the demand and not the price of theses goods and services. These factors could be, the amount of disposable income a person has, a rise in complement goods, the trend in the market, natural disasters, war and many more. 

As you can see, the price of the particular good remain constant but the demand curve shift to the left. It shows that price is now not the main factor that affects the quantity demanded. For example, a trend for LV green bags is growing wild. Since the trend for LV green bags is growing in the market. The trend for other bags will reduce. Therefor there will be a shift in demanded curve to the left. Where as the demand curve for LV green bags will shift to the right. This can be an example which is known as substitute goods.

There is another type of demand curve which is very common to the society. The curve is known as exceptional demand curve. It’s an upward slopping curve. The higher the price the more the quantity demanded. For example:  property(speculative goods), shares(speculative goods), branded goods(snob appealing goods) and many more.

Besides demand curve, I've learnt about supply curve too. The definition of supply curve is the amount of goods a producer willing and has to sell at various prices over a period of time. What is sold is actually determined by the demand as well.

This is an example of a supply curve diagram:

The supply curve is an upward slopping curve. It shows that the Price of goods and services produced is proportional to the quantity supplied. As you can see... When the price of a product increases, the quantity demanded is high. Producers set their price high because they can earn more profit. They noticed that their product has a high demand, consumers are willing to buy. Therefore they set the price higher and increase the quantity supplied. As price change, quantity supplied will be changed as well and it involves the movement along the supply curve.

 Factors affecting supply curve to shift are cost of production, technology, efficiency, price of substitute goods or competitive goods, weather, Govt legislation (tax, subsidy) and many more.

I’ve learnt about equilibrium price as well. Equilibrium means balance and equilibrium price: price that a buyers is willing to pay = price that the seller are willing to accept. Well, is known as the market price.

·        The point where both curves intersect with each other is the equilibrium.

·        When supply is more than demand: it’s known as surplus.

·        When demand is more than supply: it’s known as shortage.

The change in equilibrium price is affected my both demand and supply.

This is an example where equilibrium price is changed and it’s affected by the demand. I’ll use vegetables for example. When there is an increase in demand for vegetables due to having a healthier lifestyle, the demand curve will shift to right from D1 TO D2. It signals the producers to grow more vegetables for their consumers; the movement of the demand curve is increased along the supply curve from Q1 to Q2. The price for vegetables will increase from P1 to P2 because people are willing to purchase. Therefore, producers will get to earn more profit.

This is another diagram where the equilibrium price is affected by the supply curve. I’ll use petroleum for an example. Due to scarcity, the supply for petroleum has decreased which shifts the supply curve to the left from S1 to S2. The producers will start setting up the price higher from P1 to P2 in order to earn more profit in the future. Since the price of petroleum became higher, the demand for petroleum is reduced from Q1 to Q2. Consumers may start using other alternatives such as public transport or carpooling in order to save money.

The types of goods I’ve learn during the week are:

Normal goods: The demand on certain good has increased due to higher income.

Inferior goods: The demand on certain good has decreased due to higher income.They can afford better G&S

Interrelationship between markets:

Joint demand: Complement goods. “You need to buy this in order to use that” such as car and petrol, socks and shoes...

Competitive demand: Substitute goods. Such as LV and Gucci, jam and butter.

Derived demand: Occurs when a good is demanded in order to produce another good. Such as Wood and furniture, plastic and Tupperware.

Joint supply:  When two or more goods supplied together. Such as sheep (meat, wool), crocodile( leather bags and meat).

Competitive supply: Producing using the same FOP. Such as Rice and brown rice.

Composite demand: When products has many uses. But one of its uses is very important to the society. If it’s used for other things, it’ll be charged higher compare to before.