Demand and supply analysis of beans due to suspension of tariff on imports

Article is chosen for this study. The first section that is taken for the analysis is that the government has suspended 10% tariff on import of beans.  The microeconomic concept that is used for this section is the demand and supply analysis of beans due to suspension of tariff on imports. The second section that is taken from this article is the legislation that is prepared by the government for increasing the price ceiling on foreign ownership airlines. The microeconomic concept used for this is how the imposition of price ceiling affects trade of goods as well as its demand and supply.

The first section of this article shows that there is a shortage of beans in Brazil and hence the government imposes suspension of tariff of 10% for encouraging trade within the economy (Ruttan and Thirtle 2014). Brazil government adopts such policy in order to attain benefit of specialization. The trade of this country contributes to lower GDP share in the economy. However, this affects the total productivity of the nation as new markets are not opened up for the manufacturers. As a result, this adversely affects the economic performance of this country in the long run.

The learning objective used for this is the factors that affect both the demand and supply of beans. There are various factors that influence the demand for and supply of beans in the Brazillian market that includes consumer’s income, product price, imposition of government policies and consumers preference. On the contrary, the determinant that affects beans supply in the market involves – innovation of new technology, input price and total purchasers (Mankiw, 2014). Furthermore, for this analysis calculation of price elasticity of demand and the relationship between price elasticity and revenue is also discussed.

The relation between total revenue and price elasticity is also explained for this section. Price elasticity of demand has a close relation with total revenue. If the product is elastic then the suppliers reduces price for attaining higher revenue. On the contrary, if the good is inelastic, the producers increases price for gaining higher profit. The suppliers set the beans price by considering its elasticity of demand. Beans are considered as inelastic product because no substitute goods are available in the market.. Therefore, the suppliers tries to raise the price of beans for attaining higher revenue. Moreover, the price elasticity of beans demand is calculated by the percentage change in demand for quantity with respect to change in its price.

Factors that affect both the demand and supply of beans

The learning objective that is taken for this analysis is how the imposition of policies affects trade. Price ceiling refers to the measurement of control in price adopted by the government on certain product for preventing the customers from being indicted high product price. In this case, as the government raises the price ceiling does not affect on their trade (Mankiw, 2014). Moreover, implementation of price ceiling influences both the demand for and supply of goods. The economic impact on price ceilings is expalined with the help of demand and supply graphs. As the government of Brazil sets the price of beans below the market equilibrium price, it adversely affects the economy condition as it leads to shortage in beans.

Moreover, if the government imposes price-ceiling for longer period, then they should ration the product for ensuring higher availability among the consumes (Ingenbleek, and Van der Lans, 2013). Due to this prolonged shortage of beans, black market occurs for this good. Black market refers to the underground system of manufacturers that sells the customers as much of controlled products as they desires. Moreover, this market also offer higher profits for retailers and higher product for those consumers those who wasn’t to take the risk. Increase in price –ceiling also improves trade in the country. It benefits the nation by production maximization, rise in welfare and national income  and reduction in production cost due to scale economies. Hence, suspension of tariff and rising price ceiling would liberalize Brazilian trade in the economy.

This initiative taken by the government will improve trade in this nation and hence the productivity is assumed to increase in future. Moreover, this step will also benefit those consumers who want to save money in order to have foreign products access at lower price. In addition, it will also opens up new market for the manufacturers that will motivate them to manufacture in larger amount (Friedman, 2017). Owing to this, the supply of the bean will also increase.  In addition, decrease in prices of imported beans will also increase the demand of purchasers. This is shown in the diagram below:

                                                      Demand and supply of Beans in Brazil

In this diagram, the DD curve  represents the demand for beans and SS curve depicts the supply of beans in Brazil. The market equilibrium occurs in the situation where the demand curve (DD) for beans intersects with the supply curve (SS) of beans. Owing to tariff suspension imposed by the government, the supply of beans will increase in the country. This is highlighted by the lower supply curve S1S1 (F et al., 2013).  This leads to reduction in beans price from P to P1.  Therefore, the demand for the imported beans also increases as the consumer’s purchasing power increases.

In this article, it is stated that the Brazilian government is planning to prepare legislation for raising price ceiling of foreign airlines ownership from 20%. This initiative will be taken for improving trade in order to negotiate trade pact with other countries  (Baumol and Blinder, 2015). The shortage of beans arises in Brazil due to inefficiency of beans trade in the country.  Price ceiling imposed below the equilibrium price creates shortage as the quantity demanded of beans becomes higher than quantity supplied.

Moreover, less supply of service or goods and increased demand creates inefficiency in the market as marginal benefit (MB) becomes more than marginal cost (MC). Hence, this inefficiency becomes equal to deadweight loss. Imposition of this scheme will not affect terms of trade, as marginal benefit that the economy gains from higher price of airlines ownership does not surpass marginal cost of foreign airlines (Bauer, 2014). Further, this initiative will improve the economic condition of Brazil as it will help in covering the shortage of beans. In addition, this proposal will enhance the export of beans and facilitate the nation in coming out from deep recession.

                           Price ceiling to be imposed by the Brazilian government on airlines ownership

It concludes from the above article that enactment of government measures largely influences the respective economy’s condition. As the nation faces competition from foreign countries, proper legislation will improve the progress of the nation. Therefore, the industries in this country must be competitive in order to gain competitive advantage over other foreign industries.

References

Bauer, M. J. R. (2014). Principles of microeconomics.

Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage Learning.

1. Bustinza, O., C. Parry, G., & Vendrell-Herrero, F. (2013). Supply and demand chain management: The effect of adding services to product offerings. Supply Chain Management: An International Journal, 18(6), 618-629.

Friedman, L. S. (2017). The microeconomics of public policy analysis. Princeton University Press.

Ingenbleek, P. T., & Van der Lans, I. A. (2013). Relating price strategies and price-setting practices. European Journal of Marketing, 47(1/2), 27-48.

Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.

Mankiw, N. G. (2014). Essentials of economics. Cengage learning.

Ruttan, V., & Thirtle, C. (2014). The role of demand and supply in the generation and diffusion of technical change (Vol. 21). Routledge.