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Explain and analyse, using the demand and supply model, the impact of market developments on the price and quantity of the products provided below.
Case 1 – The price of Palladium
At a dinner party in London, talk turned to how one of the couples had just been robbed of a precious metal. The target was not jewellery but the palladium in the catalytic converter of their hybrid car – the vehicle had been jacked and the device sawn off.
Explanation? The sales of diesel cars, which use platinum in catalytic converters, sagged following the Volkswagen emissions scandal: drivers have since turned to petrol vehicles, which use palladium.
Case 2 –The price of Avocados
Supplies from key producers are tightening in Europe because their main supplier, Peru, is expected to send its produce to the US because of a fall in output from Mexico (its largest supplier). Mexico is currently going through an “off year” where Avocado trees are recovering from the previous “on” year.
The supply restriction comes at the same time as European consumption of Avocados is rising due to the increasing trend to eat healthier, lighter meals. Recipes from the likes of British TV chef Jamie Oliver and vegetarian offerings from sandwich chains have spurred consumption.
Current prices for avocados are €14 for a 4kg box.
Choose a market and a firm that you are familiar with and explain the degree of market power held by your chosen firm in the market. Explain your answer based on:
(i) the number of competitors in the market,
(ii) key determinants of elasticity and
(iii) any barriers to entry evident in the market.