Prices of US newspapers are increasing. A trade complaint by a paper company influenced the United States Department of Commerce to set an overall tariff at 6.53% for newsprint imported from Canadian plants. The US newspaper industry relieves heavily on Canadian newsprint, importing $1.6 billion’s worth in 2016. This has amounted up to a 20-30% increase in newsprint prices for the US.
The new tariffs, as a supply determinant, be classified as an increase in the cost of factors of production, as it would cost more to supply an equal quantity of newspapers with added tariffs. This increase in cost decreases supply, shifting the supply curve left. Although Canada is not the sole source of US newspapers, it represents a major portion, and other producers do not have the production capabilities to meet demand; therefore overall US newspaper supply decreases. However, it can be stated that specifically US-based newsprint will see a small increase in supply due to seller’s expectations that the price will rise. Demand, in the short-term, has not changed.
An decrease in overall supply results in an increase in equilibrium price.
Due to an increase in demand and a decrease in supply, natural vanilla prices are skyrocketing.
Consumers are increasingly demanding natural ingredients in foods that they buy. This includes flavored desserts like ice cream and chocolate that use the ingredient vanilla which is mainly grown in Madagascar. This increase in demand due to buyer’s preferences has pushed the price of vanilla upward, making goods containing it more expensive. About seven years ago, vanilla prices approximately increased 10% a year. Two years ago the price doubled, and just last year the price had increased to five times to what it was. The current cost for a kilogram of premium vanilla beans is $850, $830 more than it was five years ago.
In addition to rising demand, the crops of Madagascar have been severely damaged by a cyclone that passed through, destroying a significant amount of their output. Due to the number of sellers in the vanilla bean market, securing vanilla beans for operations is becoming extremely difficult, especially for small mom-and-pop shops that aren’t taken as a priority when considering the big players of the convenient food industry. Some small businesses have considered dropping items containing vanilla altogether from their menu. The cyclone of 2017 was the biggest factor in the extreme price jump for the vanilla beans. Below is a graph illustrating these changes in the vanilla bean market.
In Malaysia, the price of durians has fallen. On a month-by-month and year-by-year basis, the cost of purchasing a kilogram of the fruit has dropped significantly. In the past month alone, a popular variety of durian known as Mao Shan Wang has gone from $20-28/kg to $12-20/kg, nearly a 40% drop in price. Last year, the Mao Shan Wang variety of durian may have costed more than $40/kg, despite the major growing season of durians being June to September.
There are two causes to this drastic change in price and shift in market equilibrium:
The first cause is weather. Malaysia has experienced abnormally hot weather in recent times, which is perfect for growing durians. This led to a bumper crop, or a more productive harvest. The weather that created an unexpectedly large supply of durians would be a supply-side determinant, namely Cost of Factors of Production. The good weather allowed more durians to be produced for no additional cost, shifting the supply curve to the right.
The second is a change in demand. The article notes that after Chinese New Year, the demand for durians usually drops. Although it was noted that demand was still comparatively high, this change in the demand-side determinant of Buyer’s Preferences shifted the demand curve to the left.
The overall change was a large decrease in equilibrium price with a smaller increase in quantity supplied.
China’s hog prices have plummeted to their lowest point in nearly four years in the second week of March 2018. They are the worlds number one producer of pork and to put things into perspective, over half of the world’s pigs now live in China. More than 50 million metric tons of pork was produced in 2012 and that’s twice the amount of the meat produced in all 27 E.U countries and five times the amount produced in the U.S. China loves pork so much that it even has government reserves for the meat.
Due to the increase in supply while demand remaining unchanged, prices for pork have plummeted.
The supply determinant is both seller expectations and number of sellers.
Live pig prices are now hovering just above 11 yuan ($1.74 USD) per kilogram in major producing areas, which is very much below the average production cost. (Plunged more than 20% from early January 2018)
As depicted by the article;
“The reason is very clear. There are a lot of pigs on the market,” said Feng Yonghui, chief researcher at trade website Soozhu.com.
The sudden drop in prices is due to big producer expanding to grow market share. Monthly government data had shown a drop in the number of the pigs that are bred, suggesting supply has not yet caught up with the demand. The government even ended up releasing some pork from its reserves (albeit not a large amount), the market was receiving signals of insufficient supply which misled the market.
An abundant supply during the Lunar New Year festivities (China’s peak pork consumption) led slaughterhouses to take advantage of the increased supply to set prices which led to growing price pressures on the market.
This ultimately led to suppliers believing that the demand on the market was more than what it was set at, causing them to over expand and over produce. This caused the market price to drop as to sell more pigs.
The prices of vanilla are higher than they have ever been. The wholesale price now runs at $850/kg for premium beans, which is 10% higher than last year (which was 30% higher than the year prior). Just 5 years ago, vanilla could be obtained at just $20/kg.
Consumers began to demand more natural ingredients in products like cakes, chocolate and yogurt, which led to big companies like Hershey converting to real vanilla for their chocolate. At the same time, the supply decreased due to plantations outside of Madagascar giving up on the labour-intensive crop that were priced low at the time. In March 2017, a cyclone hit Madagascar, the leading producer of vanilla in the world, which destroyed much of their crop.
The increase in demand was a result of the demand determinant: buyer’s preferences as they simply wanted more vanilla in their food products. The decrease in supply that occurred was a result of the supply determinant: cost of factors of production because the plantations stopped producing vanilla due to the low prices and labour-intensive nature of growing the crops. The natural disaster that occurred would also be categorized under the supply determinant of cost of factors of production.
Ultimately, the price at equilibrium increased while the quantity at equilibrium is ambiguous.
“I do not think we can assume a rational market for cryptocurrency.” – Ms. Cuttle, in class.
This post shall explore the broader implications of that fact in recent times.
Graphics cards are important components of many computer systems, especially those used for 3D modeling, video production, and, of course, gaming. They have also proven quite cost-effective in mining certain newer types of cryptocurrency. This has caused a great number of people to buy such cards in great quantity. The number of buyers has increased, and buyers’ preferences have also changed in a manner that increases demand. Meanwhile, the supply curves remain mostly unchanged.
This has caused the prices of certain types of graphics cards to increase dramatically: For example, one type’s price has increased by 202% from its recommended retail price of $230 to $695 at the time of the article’s publication. The prices of other graphics cards have also been affected. As the optimal types’ prices rose and their availability often decreased, buyers seeking to use graphics cards for cryptocurrency mining turned to other types that were made more attractive by the elevated prices of those optimal types. (demand determinant: price of alternatives) Meanwhile, types that are not suitable for mining but compete with mining-suited cards for buyers with different needs have also experienced demand and price increases due to increasing prices of their alternatives.
Note to the Cuttlefish: The source may not seem credible, being itself a blog. However, the events it describes have been reported in other more credible sources, which agree with it in facts. This particular source was chosen to be linked because it conveniently contains many relevant figures concentrated in a single text.
Another note to the cuttlefish: the movement on the graph was shown as upward rather than rightward because the graph made it difficult to draw the required arrow, and changing the graph to enable it (for example, by changing slopes) would make it less representative of the situation.
With the recent surge of popularity in Bitcoin and other cryptocurrencies, graphics card prices have also surged. People purchase and use large numbers of graphics cards in order to “mine” cryptocurrencies. As the result, the demand for graphics cards has increased causing a drastic increase in price. For example, the Nvidia GTX 1070, a card that should retail for about $380 is being sold for over $700 due to lack of stock.
From an economics perspective, there was a change in the demand determinant, number of buyers. Since the number of buyers increased, the demand curve moved right. This resulted in a shortage, causing an increase in the equilibrium price and equilibrium quantity.