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Supply and Demand Assignment
Essence of the story
In the following assignment, the article related to “lowering down the price of Australian Wheat” has been taken. This article has been taken for the analysis so that the effect of various factors on the demand and supply and demand of product could be understood in a comprehensive manner. This article includes the effect of price and quality of the product over the demand and supply of the product and also throws light over the impact of substitute products.
This article is been analyzed keeping the due interest of the farmers and the economy of the country as wheat contributes a great share in the economy of the country so it is required to take every possible action for ensuring good demand of the wheat produced in Australia. After the analysis possible recommendations will be given to the farmers so that demand could again be raised for better living and income.
The article that has been taken for the analysis reflects that the prevailing issue in Australia is the falling demand of the Australian wheat in the country itself. According to Workman (2017), Australia holds the top fourth position that generates maximum revenue out of selling of wheat (Workman, 2017). The revenue collected by selling of wheat account for $ 3.6 billion this states that wheat contributes a great proportion in the economy of Australia and thus considered as a significant resource of Australia (Workman, 2017). This sale has been fallen down by 47% from the sales of wheat in the previous five years. Because of the significant fall, it is required to analyse the exact reason for the appropriate solutions. For the stable prices, it is required to maintain a balance between the demand and the supply so that price does not need to be changed.
Figure 1: Grains production in Australia
(Source: Spragg, 2016)
The above diagram presents that the production of wheat has risen by almost 11% from the last five years this shows that the Australia is expanding its supply capacity to meet the increasing demand. But this increasing production results negative to Australia because the consumption and supply are quite less.
Figure 2: Local wheat consumption in Australia
(Source: Indexmundi, 2017)
The consumption of the wheat produced by Australia in Australia often declines because of the growing supply of the wheat from other countries. This shows that the demand for Australian wheat in Australia falls because of a large number of substitute products that are lower in prices and are competitive or higher in quality. The above situation throws light over the economic concept that the fall in the price of substitute commodity will result in the fall in demand of the primary of products as the buyers shift to purchase the substitute products (Suli&Xhabija, 2013). This shows that for attracting the customers, the Australian farmers are left with the only option that is to develop competitive characteristic in the wheat. This competitive characteristic could be developed by decreasing the prices and increasing the quality.
The demand and the price have an inverse relationship with each other that means higher the prices the lower will be the demand and the lower the prices the more will be the demand. This concept of economics could be understood by referring to the law of supply and demand curve.
Figure 3: Relation between price and demand
(Source: Managedstudy, 2016)
The law of demand states that the price and demand will have inverse relation only till the price of substitute product will remain unchanged. Otherwise, with the fall in price, the demand for the primary product will decline at the constant price also (Suri, 2012). Because of the great substitute impact of rice produced by USA, Canada, and other countries, the demand for Australian wheat falls as the prices are high and quality is less. Thus to again restoring the demand, the prices are to be lowered down and the best price could only be found by matching the production with the actual demand.