Alijah Janudin

FOOD PRICES

This news article is reported by Condyles for the New York Times, regarding the crisis in the food market after a bad weather hits the country during summer affecting the farms and it will also affect the export industry since America is a major exporter of varieties of agricultural and livestock product to the neighbouring countries. Therefore, the price on groceries (dairy products, beef, chicken and processed foods) is rising because of the devastating drought damaging the production of corps and others as well as the cattle farm. In the meantime, it will also affect the US export industry. But how do changes in supply affect prices and the export industry? Figure 1 and 2 are the model of demand and supply to explain the changes and predictions of market economy specifically on the food prices and export market in the United States.

The impact of the drought and the dry weather has wiped out the production of corn, soybeans and other crops and even damaged the poultry and livestock. Therefore, this major incident has leaved the consumers full of worries due to rising food prices. The burning heat and the worst drought put the price of the foods up.

Figure 1 indicates that when the supply curve shift to the left, which the author has mentioned that the government stated the price of U.S. staple foods, will raise 4-5% by 2013, it decreases the supply of U.S. staple foods as well as the quantity falls due to the loss of productions.

On the other hand, Figure 2 shows that both demand and supply curve changes. Where the supply curve shift to the left and demand curve shift to the right. The graph models the consequences of these demand and supply shifts. The increased demand agricultural products shift the demand curve to the right, increasing the price of the products. The regulation shifts the supply curve up and to the left, causing a further increase in price. The exact price and quantity changes will depend on the size of the demand and supply shifts and the elasticities of the demand and supply curves. As the author has mentioned in the article, economist predicted a far greater impact outside of the United States for the export of the agricultural and cattle products. Consumers outside of United States are still willing to buy since it is also their staple food. As a result, it is expected that the price goes higher in he future and also fall in the export supply due to the loss of agricultural and livestock production. Furthermore, the author also reported that agricultural experts urged international action to prevent global spike in food prices to avoid global hunger therefore, if the price remains the same, the demand still rises.

In conclusion, although the drought is affecting the agricultural and livestock productions, as well as the prices rises, U.S. residents have no choice. But in the future, accessibility to food is also determined by the long term trend in food prices. The rising trend in global food prices is likely to persist in the next decade. In the long run, however prices will fall. Consequently, agricultural prices are forecast to decline over the next few years in the United States after the occurrence of the drought recently. A strong combination of supply response and continued growth in demand is expected to keep prices above historical levels, but well below from the experience recently.

 HOUSING MARKET

After reading the articles of “Real Estate tale of two cities” written by Johanson for The Age newspaper, published on October 4, 2010. Two different problems encountered to two different cities of Australia. Sydney is facing the “slow release of land” issue which hinders it from building more houses as a result the house developers refuse to supply more houses into the market due to the high cost of land.

In addition, on the demand side, Sydney is facing critical challenge with lack of supply for houses but high in demand.  Sydney is suffering severe drop in home sales due to the few supply of houses. Therefore the housing industry in Sydney is experiencing shortage which also drives up the price of the available houses.

The figure below shows the quantity demanded for houses exceeds the quantity of the houses supplied. As the price of the available houses becomes expensive, it eliminates the excess demand which it changes both the quantity demanded and quantity supplied. This has resulted due to two reasons:

1.      The market moves upward along the demand curve, decreasing the quantity demanded.

2.      The market moves upward along the supply curve, increasing the quantity supplied.

On the other hand, Melbourne is building more houses than it needed. As mentioned in the article, estimation was made in which that the figure of dwellings is increasing in few years time. As for now, Melbourne has a shortfall of nearly 200,000 dwellings. This means that the housing in Melbourne is above the demand. This issue is a total opposite to the housing industry of Sydney is facing.

The figure below shows the surplus of houses built for sales which at the prevailing price the quantity supplied exceeds the quantity demanded. But as the price drops, the excess supply will shrink for two reasons:

• The market moves downward along the demand curve from, increasing the quantity demanded.

• The market moves downward along the supply curve from point, decreasing the quantity supplied.

Can economic theory suggest a solution that would still offer entries at the “fair” price in Sydney, but also make sure the land issue will be taken care of? Sydney is experiencing slow housing construction due to high cost of land and less approval from the government to build more new houses. Hence, undersupply of houses will keep housing prices higher than average. I agree with the First National Real Estate that the government needs to consider to release more land to allow more housing developments to satisfy the high demand of the people in Sydney. In addition, the shortage of houses has caused the available house for sales less affordable as a result, demand of houses remains high.

As the housing industry in Melbourne is experiencing oversupply of houses, therefore to overcome this problem, the price of the houses have to be lessen so it will be affordable by reaching the equilibrium price. Where, the market price at which the supply of houses balanced to the quantity demanded.