Economics

7303AFE Economics

Microeconomics Assignment

Ning Li s2782650

Lin Tan s2740728

Huy, VO s2862772

WORD COUNT: 531

Question 1

1.1 a) In 2012, it was the second driest in 60 years, and the 2011-2012 winter was unusually cold (Arbour, 2012). The weather in Spain, the world’s largest producer, was unexpected bad during harvest season. As a result, the output of olive oil was dramatically decreased, consequently as little as half of what was in 2011 (Dolan, 2013).

b) Since Spain exports 60% of olive oil to more than 100 countries, the bad weather had also affected the global market. According to olive oil statistics, the Spain exported around 500,000 metric tons (1000 tonnes) in 2012/2013, compared to 1500,000 in 2011/12 (Advisory Committee, 2013).

(Advisory Committee, 2013)

In total, the average production had reduced from 2,444,900 to 1,525,500, representing a significant influence to the world market.

1.2

Explanation:

Due to the bad weather in Spain, it is expected that the price of olive oil will increase and the quantity will consequently be reduced. The supply curve will shift to the left as the diagram illustrated. Customers are expected to take substitutes such as sunflower oil or vegetable oil for a short-term period.

1.3

Harvest failure in Spanish olive oil likely means higher prices (Arbour, 2012). As the result of bad weather in Spain, domestic prices rose 40 percent from June to about 2,400 euros ($ 3,073) a ton at the beginning of September (Ruitenberg, 2012). Moreover, the production of Spain has decreased about 10% (Olive Oil Market, 2013).

(Dolan, 2013)

Based on the global market, the oil used in cooking may fall 18% to 2.96 million metric tons. Besides, as pointed out by Oil World, olive oil prices should have further upward potential. The world consumption has a fall from 2524.5 (1000 tonnes) to 2450.5 metric tons in 2012/13, as the 1.2 diagram predicted.

However, the demand of olive oil is not only affected by...