Demand And Supply Of Tea Assessment Answer

According to Australian Health Survey released on 2014 that was carried on  2011-2012 showed that tea is consumed by 38% of the total population of Australia. Coffee which is a close substitute to tea was consumed by 46% of Australian population. The Australian market has experienced changes in the recent years that have led to changes in the in demand and supply of tea in the country. This paper explains the factors that affect the demand and supply of tea in the Australian market.

Factors that affect demand for Tea

Demand for tea is affected by several factors in the Australian Market. These factors are; Price of substitutes, population, consumers’ expectation, prevailing price of tea, consumer level of income, taste and preference of a consumer. These factors are discussed below.

To begin with is the level of income that buyers have. The level of consumers’ disposable income determines there purchasing power. When the consumer purchasing power increases, the amount ht consumers are able to purchase also increases. This leads to an increase in demand and vice verse.

Second is the price of coffee. When the prices of coffee increase, more customers shift to consume tea. This is because tea and coffee are substitute products in the market. Therefore, consumers will shift from consuming much of quantity of coffee and start consuming more of tea. Alternatively, when the prices of coffee decrease, consumers will shift from consuming much quantities of tea and increase their consumption of coffee (Mankiw and Taylor, 2011).

Third is a change of taste and preference. A slight change in taste can lead to an increase or decrease in demand. Tea is highly consumed because of taste and unfavorable change in taste will lead to decrease in demand while an improvement on taste will increase demand.

The fourth factor is the consumer expectation. The anticipation of the prices of tea in the future determines the amount of tea that consumers will buy. Consumers anticipating an increase in tea prices will buy more today leading to an increased demand. Also, consumers expecting a fall in tea prices will delay purchasing tea until the time arrives.

Another factor is the Population consuming tea. This is the number of buyers in the market. The larger the number of tea buyer, the higher the demand for tea. A large population that consumes tea increases the demand for quantities of tea and vice verse.

Lastly is the prevailing price of tea. The price of tea determines the amount of tea that a customer will buy. An increase in price will reduce the willingness and ability (purchasing power) of a consumer to buy tea. A decrease in the price of tea will lead to an increased amount of products that the consumers will be able to purchase hence an increase in demand (Harpercollege.edu, 2016).

Factors that affect Supply of Tea

Supply of tea is affected by the level of technology, taxes, suppliers’ expectation, number of suppliers in the market and prevailing price of tea. These factors are discussed below.

The first factor is the level of technology available. Advancement in the level of technology will increase efficiency in production thereby enabling producers to gain more at the existing market prices. This will increase the amount that the producers are able to supply in a market (Khan Academy,2016).

Secondly are the taxes levied or incentives allowed by the government. An introduction or increment of taxes from the government will increase the cost of production or availing commodities in the market. This will make it hard for supplier with the existing market prices and in the most likely action will be reducing supplies or leaving the market. An increase in taxes will decrease the amount supplied in the market. Alternatively, reduction of taxes or incentives to produce from the government will enable producers to produce and supply more in the market (Mankiw and Taylor, 2011).

Third is prevailing price of tea per unit. An increase in the prices of tea will attract more suppliers into the market. Higher prices give good returns to producers and therefore willing to supply the market. A decrease in tea price in the market will tend to scare suppliers because of small margins therefore leading to decrease in the amount supplied.

The fourth factor is the Suppliers’ expectations .producers anticipation of the market determines the amount of Tea they will supply. When producers are expecting an increase in price of tea in the near future, they will intention hold stock to take advantage of the prevailing market prices. Alternatively, suppliers will intentionally flood the market when they anticipate a fall in the market price of tea (Gijo, E., 2011).

Another factor is the number of tea suppliers in the market. The number of Tea suppliers determines the amount of tea that can be supplied in the market at a given time. Many suppliers will increase the supply of tea and vice verse.

Lastly is the cost of production. When the cost of inputs increases, producers are unable or unwilling to produce and supply much in the market. Therefore, an increase in cost of producing tea will lead to decrease in the amount of tea supplied in the Australian market.

Conclusion

From the discussion above, I conclude that tea follows both the law of demand and supply It is evident that an increase in prices of tea leaves leads to a decrease in amount of quantities demanded implying that price and demand are inversely related. Also, an increase in tea price will lead to an increase in amount of quantities supplied which indicate a positive relationship between price and supply. Therefore, tea exhibits characteristics of a normal good.

I can also conclude that neither demand nor supply on its own can determine the price of tea. High demand is offset by increased supply and vice verse. This condition gets stable at a point that shows the highest price that consumers are willing to buy at and the lowest suppliers are willing to sell at in the Australian market. This point is the equilibrium point of tea in the market.

References

Australian Health Survey.(2014). Nutrition First Results - Food and Nutrients, 2011-12

Expanding in Australia to meet demand. (2003). Filtration & Separation, 40(3), p.14.

Harpercollege.edu. (2016). Demand and Supply. [online] Available at: https://www.harpercollege.edu/mhealy/eco212i/lectures/s&d/s&d.htm [Accessed 16 Aug. 2016].

Gijo, E. (2011). Demand forecasting of tea by seasonal ARIMA model. IJBEX, 4(1), p.111.

Investopedia. (2010). Law Of Supply And Demand Definition | Investopedia. [online] Available at: https://www.investopedia.com/terms/l/law-of-supply-demand.asp [Accessed 16 Aug. 2016].

Mankiw, N.G. and Taylor, M.P. (2011). Andover: Cengage Learning. Economics (2nd ed., revised ed.).

Khan Academy. (2016). Khan Academy. [online] Available at: https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium [Accessed 16 Aug. 2016].

Pinkasovitch, A. (2011). Introduction To Supply And Demand | Investopedia. [online] Investopedia. Available at: https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp [Accessed 16 Aug. 2016].