Micro Economics Assessment Two You are to select a newspaper/magazine/web article for economic analysis. The article must relate to one or more of the topics (chapters) covered in the lecture program. The article must also have been written after 1st Oct
Finance & Econ
economics_report_2.docxEvelyn Calvina
15168485
Table of Contents 1.0 Article Summary 2 2.0 Introduction 2 3.0 Analysis 3 3.1 Demand and Supply………………………...………………………3 3.2 Elasticity…………………………….………………………………..6 3.3 Shortage………………….…………………………………………..8 4.0 Recommendations 9 5.0 Conclusion 10 Reference List 11
1.0 Article Summary
The article by The Jakarta Post, titled “Demand for Beef to Rise during Fasting Month” was posted on 27 July 2011. It reports an increase of consumers’ demand for beef during fasting month and nearly to the celebration of Islamic holy month. During this fasting month, there are approximately 117 live cattle demanded per day in Pekanbaru, Indonesia. In addition, it is estimated that 1,611 live cattle will be needed for Muslim’s people consumption and sacrificial during this fasting month. (The Jakarta Post, July 27, 2011).
2.0 Introduction
Due to an event such as Islamic Fasting Month that started on 1st August 2011, there has been a new market situation for beef. During this month, there is an increase in the demand for beef due to several non-price factors, such as increase in people’s salaries, change in consumers’ preference and change in population. However, there has been a new issue that Australia’s government has ban its export of live cattle, such as cows as the input for beef to Indonesia and cause a decrease in supply of beef. In this report, there will be further analysis on demand, supply, elastic and shortages of beef in Indonesia. Furthermore, some suggestions are also given to Indonesia’s government (The Jakarta Post, July 27, 2011).
3.0 Analysis
3.1 Demand and Supply
Demand can be defined as the amount of goods and services that customers are willing and able to purchase at a period of time (Hubbard, et al. 2010, 62).
In Pekanbaru, Indonesia, during normal days, there are 30-40 cows demanded daily in order to produce beef. However, during Ramadan days, there is a significant increase in the demand for live cattle such as 117 cows demanded per day (The Jakarta Post, July 27, 2011).
According to The Jakarta post (July 27, 2011), during Islamic Holy Month, the income of workers tends to increase since there is an additional salary given by the company they are working on. As cows are classified as normal goods, therefore as the consumers’ income rises, the demand will also rise as they have more purchasing power. The habitual of consuming beef during fasting month has caused Muslim people to change their preference to consume beef. Moreover, during Ramadan month, Muslim people usually will buy more live cattle to be sacrificed according to their beliefs. Therefore, the demand for live cattle will increase during Ramadan month. According to U.S. Department of State (2011), Indonesia’s population is 204.3 million and 86.1% of the total population’s belief is Muslim. As the number of Muslim population increases, the demand for beef will increase as well (U.S Department of State 2011).
Demand for Beef
Price
D1 S
D0
P1
Figure 1.1
P0
Q0 Q1 Quantity
As there are increases in non-price factors, there will be an increase in the demand for beef in Indonesia. Based on the graph in Figure 1.1, there will be a rightward shift of demand curve from D0 to D1. According to Figure 1.1, the equilibrium of quantity and price will both increase.
Supply refers to the amount of goods and services that firms are willing and able to produce at any given time (Hubbard, et al. 2010, 62).
When the demand for beef has increased, the government of Indonesia has encountered a new problem in which Australia has decided to ban the its export of cows, which are used to produce beef to Indonesia due to several displays in television which showed how the live cattle are being treated poorly and slaughtered in Indonesia. Furthermore, there is a case where the meat of the cows is injected by water in order to increase the weights of the cattle because as the weights of the cattle increase, the prices of the cattle will become more expensive. As a result, there is a decrease in the supply of live cattle in Indonesia (The Jakarta Post, July 13, 2011).
Live Cattle Supply
Price
D S1 S0
P1
P0 Figure 1.2
Quantity
Q1 Q0
As there is a decrease in supply due to the restriction of export of live cattle from Australia government to Indonesia, the supply of the live cattle in Indonesia will decrease and cause the supply curve to shift inward from point S0 to S1 while the demand remains the same. In Figure 1.2, it shows that there is an increase in the equilibrium of price of live cattle and a decrease in the equilibrium of quantity. As a result, the price of live cattle in Indonesia will be more expensive.
3.2 Elasticity
Elasticity refers to the ability of quantity demanded of products react to the changes in the prices of the products (AS Market & Market Systems 2011).
Price elasticity of demand (PED) is defined as the percentage change of quantity demanded over percentage change in price (Parry and Kemp 2009, 43). Based on the article, the demand for live cattle as the input to produce beef has become inelastic since the intention of beef as convenience goods has changed into necessity goods. This means that no matter how much the prices of live cattle increase, the quantity demanded will still remain the same as the consumers need cows’ meat (The Jakarta Post, August 28, 2011).
Beef Market
Price D0
P1
Figure 2.1
P0
Ed<1
Quantity
Q1 Q0
In Figure 2.1, the downward-sloping curve shows that the demand for beef is inelastic. It is proved that when the prices for beef increase, there is only a slight decrease in the demand for beef from Q1 to Q0. The demand is said to be inelastic when the result of the calculation of the price elasticity of demand shows the result of less than one.
Price elasticity of supply (PES) refers to the responsiveness of the quantity supplied to a change in price. It is calculated by dividing the percentage change in quantity supplied and the percentage change in price (Parry and Kemp 2009, 50).
According to The Jakarta Post (July 13, 2011), the supply of live cattle as the input for beef production has become inelastic since the Australian government has restricted its export of live cattle to Indonesia. Therefore the PES< 1. In this case, Indonesia government is trying to convince Australia government that the live cattle are well managed in Indonesia. In the short run, the supply of live cattle in Indonesia will be very elastic due to the limited number of live cattle in Indonesia.
Live Cattle Market
Price S0
D1
P1 D0 Figure 2.2
P0
Quantity
Q0
In Figure 2.2, it shows that there is an increase in the price of live cattle, as the stocks are getting lesser due to the restriction to import live cattle from Australia. As the result, the supplier of live cattle is not able to respond to the demand for beef and therefore the supply will be inelastic because the quantity remains the same.
3.3 Shortage
Shortage occurs because the demand for beef exceeds the supply of live cattle as the raw materials of beef production during Ramadan days.
Price Beef Market
D1 S0 Figure 3.1
D0
P1
P0
Q Q Q Quantity
Beef Market
Price D S0 S1
Figure 3.2
P1
P0
Q Q Q Quantity
In the short term, at P0, there is an outward shift of demand curve from D0 to D1 in Figure 3.1, while in Figure 3.2, the supply curve shifts inward from S1 to S0. Both graphs have shown that there is a shortage in the shaded region. In addition, both graphs also show the quantity demand exceeds the quantity supplied. As a result of this shortage, there is a new point of equilibrium of price such as at P1 that shows new equilibrium price and quantity demanded.
4.0 Recommendations
There are several suggestions that are given to the government of Indonesia in order to prevent further shortage of live cattle supply such as:
· Government could help by giving subsidy to the supplier of chicken meat as the substitute for beef with the purpose of changing some customers’ preferences to consume chicken meat instead of beef in order to prevent the scarcity of beef.
Demand for Beef
D0 S
Price D1
Figure 4.1
P0
P1
Quantity
Q1 Q0
· Government could search for another supplier of live cattle in order to increase the number of live cattle in Indonesia to meet the customers’ demand for beef.
Beef Supply
Price S1 D
S0
P1 Figure 4.2
P0
Q0 Q1 Quantity
5.0 Conclusion
In conclusions, there has been a shortage in the supply of live cattle as the input of production of beef due to Australia’s government regulation that ban its export of live cattle to Indonesia, while there is an increase in demand for beef. This situation has forced Indonesia’s government to take some actions in order to prevent worse situation, such as to reduce the price of substitute products for beef to influence consumers’ demand and increase the number of supplier to increase the quantity of live cattle as input of beef.
Reference List:
AS Market and Market System. 2011. http://tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-demand.html.
Beef prices up due to high demand. 2011. http://www.thejakartapost.com/news/2011/07/27/demand-beef-rise-during-fasting-month.html.
Demand for beef to rise during fasting month. 2011. http://www.thejakartapost.com/news/2011/07/27/demand-beef-rise-during-fasting-month.html.
Hubbard, R. Glenn, Anne M. Garnett, Philip Lewis, and Anthony Patrick O'Brien. 2010. Essentials Economics. French Forest NSW 2086: Pearson Australia.
Parry, Greg, and Steven Kemp. 2009. Discovering Economics. South Perth: Tactic Publications PTY LTD.
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U.S Department of State. 2011. http://www.state.gov/r/pa/ei/bgn/2748.htm.
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