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Changes in the costs of factors of production- there are four types of factors of production. They are labour, enterprise, land and capital. If the costs of any of these factors increase it is likely that the costs of production will increase too.
For example, an increase in the wages of workers will reduce the profits that firms will make. This is due to an increase of the costs of production. When the costs of production have increased, fewer profits are to be expected by firms. So they are less willing to supply commodities at each and every price.
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Technical progress- improvements in the performances of machines could increase the speed and the quality of goods produced. For example, before the machines were introduced to farmers producing wheat, farmers had to harvest the wheat manually. This takes a lot of time and manpower. After machines are introduced, the work is done at a faster rate, less manpower is needed and more could be produced at each and every price. Since more could be produced at each and every price, the supply curve will shift outward.
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Weather- drought, flood or storm could damage crops. This causes farmers to suffer from the loss of profits and consumers to suffer from the low supply of foodstuffs. Less food produced means that there will be less supply of that product in the market. Farmers are now able to produce less at each and every price and so the supply curve shifts inward.
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Governments- if the government wants producers to produce more, they could give the producers subsidy. The subsidy reduces the costs of production and therefore producers now could produce more at each and every rice.
If the government wants to reduce the use of a product, such as tobacco and liquor in the market they could impose a tax on these items. The higher the tax, the higher the cost of production and the lower the supply of these items.
Methods
There are two types of research I have done in order to complete the coursework. These are:
Field Research: this includes going to the Gadong Fish Market. We recorded the price of each item for seven weeks and on the final trip we asked the retailers why the price did increase.
Desk Research: this includes getting information from the newspapers, books and articles in the magazine about price changes. This type of research is easier to conduct, as it does not involve human contact
Prices of Items.
PRICES OF GROCERIES OVER A PERIOD OF TIME
Results and Analysis
This graph shows the price of fruits from 10th of August 2000 to 9th of November 2000. It shows that the prices of some fruit were kept constant over the period of time. These are papaya, pineapple, apple and mango.
The prices of fruit like papaya, pineapple and watermelon in Brunei are actually higher than those in the neighbouring country (Malaysia). It is told by one of the stall owners that they bought the fruit at very cheap prices due to its currency, which is higher than Malaysia. (The net profit that they make here is almost and sometimes even more than 100%). Even though if the prices of fruit in Malaysia have increased a little bit, it does not affect the price so much as the retailers’ benefit from excessive profit. However, unlike the fruits mentioned above prices for apple were always constant because the retailer set the price that way.
The prices for certain fruits have increased because:
- The increase of oil price has made the transportation to increase. This means that there was an increase in the cost of production. The increase in the cost of production had caused producers to supply fewer fruit at each and every price before, which lead inward shifting of the supply curve (graph #1). This applies specifically to banana because bananas were transported by small lorries instead of using a big one. So, when any of the costs of production increased it affected the cost of banana. Retailers kept increasing the price of banana because they wanted to make fast profit. However, once the price was getting ‘overboard’, consumers started to consume consumed fewer bananas. This means that there was an excess supply and a contraction of demand (see graph #2).
Graph # 1
P
D S1 S
P1
P
Q1 Q Q
Graph # 2
P D S
P1 Excess supply
Price falls
P equilibrium price
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New quantity traded Q
- The prices for orange went down because the demand for this item was low for a certain period of time due to change in taste from these fruits to more locals’ fruit such as banana and star fruit (price for star fruit was not recorded). However, the price increased to the original price once the prices for banana and star fruit had increased. It was also because due to the holiday season where most Bruneians went to Limbang to buy groceries, including fruits.
P
D S
D1
P
P1
0 Q1 Q
- The price for mango went down a little bit because there was an increase in supply due to the start of the season. Therefore, retailers bought a large amount of mango from Thailand and India because it was cheaper than before because producers in those countries were producing more at each and every price than before. This means that the supply curve had shifted outwards. So, the price of a unit of mango was cheaper at each and every price as shown below.
P
D S S1
P
P1
Q Q1 Q
- During holiday seasons, most Bruneians went to Limbang (a town near by in Malaysia). Here, the fruits are cheaper. So the demand for fruits like papaya, pineapple and watermelon contracted. This had caused the demand curve to shift inwards from D to D1, which in turns decreased the price from P to P1.
P S
P
P1
D
D1
Q1 Q Q
Price Index for Fruit
Vegetables
This is a graph of vegetables from 10th Aug - 26th Nov 2000. The items on the graphs are salad, broccoli, Mustard Leaf, Cucumber, Lettuce, carrots and cabbage. The prices of all items change except for cabbage, which was the only vegetable with a constant price over that period of time. Indirectly, the graph for cabbage shows that the quantity supplied and the amounts demanded were equal.
There are a number of reasons why do the prices of these items vary over a period of time. It is mainly because:
- Broccoli was sold at high price because when the item was introduced, only a small amount were available which caused the price to be a bit expansive to cover other costs such as transport and packaging. However, the price started to fall when more broccolis were supplied once they had a place in the market. This can be shown in the graph below:
P D S
S1
P
P1
0 Q Q1 Q
- Mustard leaf is an important ingredient in local’s cooking. So, locals tend to buy this particular product no matter what the price is. Retailers took advantage of this situation and therefore increased the price by controlling the amount of mustard leaf in the market.
D
P S1 S
P1
P
0 Q1 Q Q
- For items like salad, lettuce and carrots, only once the price fell a little bit. It was because the retailers were having clearance sale on that particular day. They had to lower the price because it will be expansive for them to store the items for another night and the best way to get rid of them was by having a clearance sale. The supply curve shifted outwards because the retailers were more willing to supply more at each and every price because they wanted to get rid of the stocks.
P D S
P S1
P1
0 Q Q1 Q
- The price for cucumber rose for a couple of weeks because farmers had to spent more money in pesticides due to the increase in parasites. Therefore, the cost of production had increased causing supply curve to shift inwards.
P D S1
S
P1
P
0 Q1 Q Q
These factors have caused the prices to change. However I believe that there are more than these. It was extremely hard to make the retailers to open up a little bit plus we only had a limited amount of time at the market.
Cabbage was to tally a different case. The prices were constant whole time showing that the quantity demanded and the quantity supplied was constant through out the time as shown in the graph below.
P
S
Market
Price
D
0 Quantity Traded
Price Index for Vegetables
Seafood
This graph shows the prices of seafood over a period of time. The prices for each and every item varied the most compared to previous graphs. Seafood is the most consumed food in Brunei. That was why the prices varied so much.
The factors that caused price to change were:
- Tiger prawns were hard to obtain in large numbers due to over consumption. So, price of tiger prawn could easily go up especially when the items were fresh from neighbouring country (Malaysia). When there was a limited amount of tiger prawns, the price increased and vice versa.
P S
D S1
P
P1
0 Q Q1 Q
- Some fish such as crabs and cuttlefish are seasonal. To get these types of fish out of its season, the prices will phenomenally increase. The demand for these types of sea creatures was constant outside of their seasons. However, during their seasons only the supply shifted outwards because fishermen caught more fish than before.
D1
P S
D S1
P
P1
0 Q Q1 Q
- The costs of production had increased due to the rise in price for petroleum. This means that fishermen now could only go to a certain distance from the shore. Therefore, they could only able to catch a limited amount of fish in those limited areas. The increase in cost of production had lead the supply curve to shift inwards as shown in the graph below.
P D1
S1
D
S
P1
P
0 Q Q1
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Somewhere between the 15th until the 30th of August, the price of beef and chicken rose. The rise for these items lead to the increase in demand for fish particularly mackerel and garouppa because the price for these items did not vary very much between chicken and meat. The increased in the price of these goods had made the demand curve for mackerel and garouppa to shift causing price to increase as shown in the graph below. It is said that the increase in price of other commodities (chicken and beef) had lead to increase in the price of garouppa and mackerel because these types of fish were substitute to beef and chicken.
P D1
S
D
P1
P
0 Q Q1 Q
- The government had subsidized Global Positioning System (GPS) to fishermen. This device is used to find out the position of boats at the ocean. Before they go out in the ocean, there is special device that receive signals from the satellite telling which area has plenty of plankton. This device is fitted in the GPS. With this thing, fishermen spend less time at the ocean and return with more catch than before. Therefore, the fishermen could catch more fish at each and every price than they were before. So, the supply curve shifted outwards as fishermen could catch more fish at each and every price than they were before as shown in the graph below.
P D1
S
D
S1
P
P1
0 Q Q1 Q
- There were also illegal fishing activities done by fishermen from other countries such as Malaysia and the Philippines in Brunei water. This caused local fishermen to have less catch. When there is less supply, they had to buy from Malaysia so that they can earn a little bit of money to keep their businesses going on. The buying of fish from foreign fishermen and resell them, had caused the price to increase and therefore the supply curve to shift inwards causing market price to increase.
P D1
S1
D
S
P1
P
0 Q1 Q Q
Price Index For Seafood
Conclusion
The factors that I have found to cause prices to change were a bit different from the ones I mentioned in the ‘Introduction’. They are:
Vegetables
Supply;
- Changes in the costs of production - rise in petroleum and pesticides
Demand
- Changes in tastes – consumers ate more locals’ fruit than imported fruit.
Others; retailers having clearance sale, important ingredient (mustard leaf) and the introduction of new product (broccoli)
Fruit
Supply
- Changes in the costs of production – rise in petroleum
Retailers just wanted to increase the prices of fruit to make excessive profit.
Others; retailers having clearance sale.
Seafood
Supply
- Technical progress- the use of Global Positioning System
- Freshness of goods
- Illegal fishing activity by foreign fishermen
- Changes in the costs of production- rise in petroleum.
Demand
- Changes in the price of other goods- rise in chicken and meat.
The reasons mentioned above are a bit different from the ones mentioned in the Introduction even though some factors affect demand and supply are quite the same for every category (seafood, vegetables and fruit). However, some are more relevant to particular goods than other e.g. illegal fishing, important ingredient (mustard leaf).
The factors mentioned for vegetables and fruits are different from the ones mentioned in the introduction. It means that the economics rule does not necessarily apply in every aspect of the market. Here, the retailers are freer to determine the prices of their products. This is because there is no government and non-government organization that deals with this problem. So there is no one to protect the consumers’ rights.
There are a lot of problems that I face in completing this coursework. The retailers were reluctant to help us maybe they thought that we were some nuisance try to interfere with their everyday business. Also, there are no written documents about how does the market in Brunei works.