The Increase In Demad Of Palm Oil Economics Essay

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The factors of production plays a critical function in every economic system as it is the chief resources used to bring forth goods. In general the factors of production are land, labour, capital and enterpriser. Based on the article, it can be determined that the factors of production used are land which is besides known as land area, labour and fertilisers. As mentioned in the article, the land area enlargement faced a lag in 2009 and 2010 which accordingly caused production to decelerate down. It is besides mentioned that there is a fertiliser cut and labour deficit. Consequently, these caused a bead in the supply of palm oil.

Monetary value

S1

S0

P0

Diagram 1

Measure of oil thenar

Q0

Q1

As seen in diagram 1, the deficiency of land, fertilisers and labour causes a displacement in the supply curve illustrated in S0 to S1. This drops the measure from Q0 of palm oil to Q1 but the monetary value still remains the same which is at P0.

S1

PriceAnother factor would be the monetary values of replacement good as rough oil is a close replacement of palm oil. From the article, when there is a autumn in palm oil stocks, the rough thenar oil hereafters rose. This goes to demo that, the market is non merely dependant on palm oil.

S0

P1

Diagram 2

Measure of thenar oil

Q0

Q1

Diagram 2 illustrates the leftward displacement in the supply curve. When there is a autumn in palm oil stocks, the measure supplied falls from Q0 to Q1 and the monetary value remains the same at P1.

Monetary value

Measure of oil thenar

Last, the province of nature is a factor that has a major influence on the palm oil production. Due to the, awful conditions conditions like La Nina and El Nino, the production of oil thenar is delayed because this indirectly brings about more unsatisfactory outputs. Naturally, oil thenar needs a batch of H2O to bring forth its fresh fruit Bunches, but in this instance the conditions conditions has disrupted that procedure.

S1

S0

P0

Diagram 3

Q0

Q1

As illustrated in diagram 3, the supply of palm oil will besides fall ; therefore, switching the supply curve to the leftwards. Shown in supply curve S0 to S1, this indicates that the measure decreases shown as Q0 to Q1. However, the monetary value of oil thenar will stay at P0.

Question 2

The market monetary value refers to the sale monetary value in an unfastened market which is fundamentally determined by purchasers and Sellerss to accommodate each other besides referred to as the market value ( investorwords.com 2011 ) . Market end product on the other manus, refers to the merchandises produced that are for sale in the unfastened market.

S1

Diagram 4

Measure

Monetary value

S0

Eq1

P2

Eq0

P1

P0

D0

Q4

Q2

Q3

Q1

Q0

Deficit

The diagram above ( diagram 4 ) , shows the consequence of the alterations in the factors on thenar oilaa‚¬a„?s market monetary value and market end product. Diagram 4 fundamentally shows a leftward displacement of the supply curve from S0 to S1. The ground being is that the factors of production are missing, the deficit of complement goods, and the bad conditions status. All these factors causes the measure of palm oil supplied to fall from Q0 to Q1. At this point, the measure supplied is less than the measure demanded which means that there is a deficit in palm oil shown in Q1 and Q4. When a deficit occurs, of course providers will force up the monetary values of the goods. The monetary value rises from P0 to P2. The measure demanded will so fall from Q4 to Q3, while the measure supplied is pushed up from Q1 to Q3. Hence, making the equilibrium measure, Eq1 at Q3 with and equilibrium monetary value of P2. In brief, the whole procedure illustrates the monetary value mechanism.

Question 3

If I were to have a bio-diesel house, my demand for palm oil will be monetary value elastic. In other words, a hiking in the monetary value of palm oil would significantly impact my demand for palm oil. The ground for the demand to be monetary value elastic is because of the factors act uponing the snap of demand. Those factors are the intimacy of replacements ; the proportion of income spent on the good ; and the clip elapsed since the alteration of monetary value ( Parkin 2010, p.91 ) .

The intimacy of utility goods is the first factor that contributes to the elastic demand. This is due to the fact that soy oil is a replacement for palm oil. As mentioned in the article, aa‚¬A“the CPO monetary value mentality would hinge on biodiesel demand, with soy oil puting the paceaa‚¬A? . The 2nd factor would be the proportion of income spent on palm oil. Basically, the demand for palm oil is increasing in the market and at the same clip the providers are holding a deficit of palm oil. If so, so it can clearly be seen that the providers will boost up the monetary value of palm oil to diminish the demand. Thus, raising my cost of production for bio-diesel which accordingly causes my demand to be monetary value elastic when such state of affairs occurs. The 3rd factor would be the clip elapsed since the alteration in monetary value. This factor plays a minor function as it does non act upon the demand that much as compared to the other 2 factors. However, this factor will non act upon my demand instantly because clip is needed for a bio-diesel house to turn up and obtain a replacement for palm oil.

Monetary value

RM 80,000

RM 70,000

RM 60,000

RM 50,000

ELASTIC Demand

Maximal gross

Entire Revenue Curve

Demand CURVE

RM 40,000

RM 30,000

RM 20,000

RM 10,000

RM 800,000

RM 700,000

RM 600,000

RM 500,000

RM 400,000

RM 300,000

RM 200,000

RM 100,000

20

20

Measure of thenar oil

Measure of thenar oil

Entire gross

UNIT ELASTIC

INESLATIC Demand

The above shows 2 types of graph. The 1 on the top is the demand curve and the bottom one is the entire gross curve. The graphs illustrate an illustration of how the factors influence the snap of demand for palm oil. Since, the demand for my bio-diesel house is monetary value elastic, there will be a motion along the demand curve which is runing from RM 80,000 to above RM 40,000. At this point the entire gross of bio-diesel will run from RM 0 up till RM 799,999. As the monetary value falls, the measure demanded for palm oil will increase aa‚¬ ” jurisprudence of demand. When measure additions and the monetary value bit by bit falling, the entire gross of the bio-diesel house will increase till it reached its maximal gross.

Word Count: 1190 words.