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This article discus about the sudden increase of 29% of blueberry harvest in Orono Maine compared to previous year.

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Introduction

Kelvin Johnston Chua 12CD ECONOMIC COURSEWORK 08/02/04 This article discus about the sudden increase of 29% of blueberry harvest in Orono Maine compared to previous year. Currently, the company is operating at Q1 - the market optimum (which can be defined as the most efficient allocation of resources). Although there was 29% increase compared to the previous year, blueberry is an inelastic good. And it has less substitutes and therefore it has a property where as price increases, the total revenue (calculated by the product of price and quantity) increases. Factors affecting the elasticity of demand could include time, substitute (is a good that has a similar function to another), degree of necessity and price level. In this case, as S is shifted out to S1 which causes the price to fall from P to P1. ...read more.

Middle

the area of farmland is inflexible. And the demand for agricultural products is also inflexible; e.g. the demand for foodstuff would not increase sharply. In this case, blueberry is also considered as an agricultural good, therefore it will also lie on the agricultural problems. Firstly, from this model, we could see that as the S is shifted out to S2, the price is pushed down from P to P1. Therefore farmers faces long term downward pressure on prices. In addition to it, the difference from P to P1 is a huge cost, which means that the farmers will have unstable income. Secondly, falling prices for farm output should be the market signal for resources to move out of agricultural goods. ...read more.

Conclusion

Then in order to stabilize prices, the government will release (Qd-R) on to the market and drive price down to P1. However there are some limitations with buffer stocks. For example, only storable goods are suitable - wheat and milk. P1 also acts a market signal to farmers to increase production. Often the buffer stock organization finds that they must buy bigger and bigger surpluses each year as farmers switch into the production of the buffer stock good choosing higher returns. These reveals with buffer stocks distort market signals. But in this case, it will not work out because blueberries are not storable. For instance the farmers has to shift back the supply curve and thus having more demand to keep them in the business. In this way from a purely economic point of view, the farmers would be better off abandoning buffer stocks and allow the market to direct resources to their best use. ...read more.

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