Application Exercise 3h:
Cigarettes | The government bans branding on cigarette packets | Decrease | Decrease in demand for cigarettes leads to decrease in price. Resources move out of the tobacco manufacturing industry because producers will seek to take advantage of the higher ‘relative price’ of other products |
Coca Cola | The price of Pepsi decreases by a huge amount (e.g. by 50%) due to higher productivity at Pepsi and lower production costs | Decrease | Decrease in demand for Coke leads to decrease in price. Resources move out of the Coke manufacturing industry because producers will seek to take advantage of the higher ‘relative price’ of other products |
Iceberg lettuce | East coast floods destroy lettuce plantations
| Increase | The decrease in the supply of lettuce causes an increase in the relative price which, over time, encourages more resources to flow into lettuce production (which effectively shifts the supply curve back to the right) |
Fast food | A government report condemning fatty foods is released and reported in the mainstream press
| Decrease | Decrease in demand for fatty foods leads to decrease in price. Resources move out of the production of fatty foods because producers will seek to take advantage of the higher ‘relative price’ of other products |
Petrol | Sanctions imposed on Russia result in a reduced supply of oil to global markets | Increase | This decreases the supply of petrol, which causes an increase in the relative price. This encourages more resources to flow into oil production in order to eliminate shortages that will develop (which effectively shifts the supply curve back to the right) |
Housing | Australian borders re-open to migrants in late 2021
| Increase | This increases the demand for housing given that shelter is one of the primary needs of new Australians. This increases the relative price of housing and encourages more resources to flow into the building of houses. |
Beer | A report is released that claims excessive beer consumption destroys brain cells
| Decrease | Decrease in demand for beer because people become fearful of the negative health effects. This leads to decrease in relative price and causes resources to move out of the production of beer because producers will seek to take advantage of the higher ‘relative price’ of other products |
iPads | There are reports that Apple exploits workers in its manufacturing facilities overseas
| Decrease | Demand decreases because many consumers will prefer to purchase products from companies that do not exploit workers. This leads to decrease in relative price and causes resources to move out of the production of Apple products and towards the production of substitute products experiencing higher demand (e.g. Samsung products). |
Illicit drugs | The government increases the penalties for those in possession of illicit drugs
| Decrease | This reduces the demand for illicit drugs as the ‘costs’ associated with consumption of the product have increased. This reduces the relative price of illicit drugs and resources move to other industries that now have a higher relative price. |
Wine | Europe develops a real taste for Australian wines
| Increase | This increases the demand for Australian wine which raises the relative price and encourages more resources to flow into wine production (e.g. farmers allocating more land to Vineyards). |
Motor vehicles | Volkswagen and Mitsubishi are found guilty of cheating emissions testing on a range of vehicles | Decrease | This reduces the demand for motor vehicles produced by these companies and therefore reduces their relative price. Resources will flow out of the production of these vehicles and towards the production of other motor vehicles whose prices now relatively higher. |
Face masks | The government mandates the wearing of face masks during the height of COVID-19 | Increase | This increases the demand for face masks and encourages more resources to flow into the production of face masks (initially an expansion along the supply curve followed by a shift of the S curve to right) |
Second hand cars | There is a shortage of computer chips reducing the supply of new cars in 2022 | Increase | This increases the demand for second hand cars as the availability of new cars has fallen and their price has increased (i.e. the price/availability of a substitute has fallen. More resources flow into the production of second hand cars (initially an expansion along the supply curve followed by a shift of the S curve to right) |
Coffee | There is a worldwide shortage of coffee beans in 2022 | Increase | Decreases the supply of Coffee and causes an increase in the relative price which, over time, encourages more resources to flow into Coffee production (which effectively shifts the supply curve back to the right) |