Below is the trade data for Dates (Thamar) from The Food and Agriculture Organization (FAO) for Morocco.  The data represents import, export, price and quantity data for 2007 and 2017.  Using the data presented in the table and chapters you learnt in ECON 200, please answer the questions individually.

QUESTION

Below is the trade data for Dates (Thamar) from The Food and Agriculture Organization (FAO) for Morocco.  The data represents import, export, price and quantity data for 2007 and 2017.  Using the data presented in the table and chapters you learnt in ECON 200, please answer the questions individually.

1. Define price elasticity of demand (5 points)
2. Using the mid-point method estimate price elasticity of import (% change import/% change in import price) between 2007 and 2017. (10 points)
3. Using the mid-point method estimate price elasticity of export (% change import/% change in export price) (10 points)
4. Compare and contrast import and export elasticity values. (5 points)
5. What would be expected income elasticity of demand? (comment on elastic/inelastic with justification) (5 points)
6. What would be expected cross price elasticity of demand? (comment on substitutes/complements with justification) (5 points)
7. Assume that the biotechnologists were able to develop a new variety of dates “Madjool” which is more efficient in input use and more productive. Draw a new output (total product) curve. (10 points)
8. Draw a new MC, ATC, and AVC curves and discuss the consequences of better input use and productive variety. Discuss what is likely to happen to output and price of date. (15 points)
9. The US state of California was able to develop and plant a new variety of dates named as “Madjool”. Discuss the Madjoon dates entry into the market in terms of a firm’s profit and output.  (10 points)

10. ANSWER

11. Price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price. It indicates how sensitive the demand for a good or service is to changes in its price. The formula to calculate price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. It is often expressed as an absolute value.

    Using the mid-point method, we can estimate the price elasticity of import between 2007 and 2017. The mid-point method takes the average of the initial and final values to calculate the percentage changes. In this case, the percentage change in import quantity is [(70055 – 50473) / ((70055 + 50473)/2)] * 100 = 28.89%, and the percentage change in import price is [(1670 – 862) / ((1670 + 862)/2)] * 100 = 68.03%. Therefore, the price elasticity of import is 28.89% / 68.03% = 0.424 (approximately).

    Similarly, using the mid-point method, the price elasticity of export between 2007 and 2017 can be estimated. The percentage change in export quantity is [(178 – 19) / ((178 + 19)/2)] * 100 = 83.95%, and the percentage change in export price is [(1989 – 737) / ((1989 + 737)/2)] * 100 = 128.82%. Hence, the price elasticity of export is 83.95% / 128.82% = 0.651 (approximately).

    Comparing the import and export elasticity values, we can see that the price elasticity of export (0.651) is higher than the price elasticity of import (0.424). This indicates that the quantity of exports is more responsive to changes in price compared to the quantity of imports. In other words, a given percentage change in price would result in a relatively larger percentage change in export quantity compared to import quantity.

    The expected income elasticity of demand for dates can be inferred based on whether they are considered normal goods or inferior goods. If dates are considered a normal good, we would expect the income elasticity of demand to be positive. This means that as income increases, the demand for dates would also increase. Conversely, if dates are considered an inferior good, the income elasticity of demand would be negative, indicating that as income increases, the demand for dates would decrease.

    Without specific data on income levels and corresponding changes in demand, it is difficult to determine the precise income elasticity of demand for dates. However, based on the nature of dates as a food item, it is likely that they are a normal good. People tend to consume more diverse and higher-quality food products as their incomes rise. Therefore, we can expect the income elasticity of demand for dates to be positive, indicating that demand for dates would increase as income levels rise.

    The expected cross-price elasticity of demand for dates would depend on whether there are substitutes or complements available in the market. If there are close substitutes for dates, the cross-price elasticity would be positive, indicating that as the price of substitutes increases, the demand for dates would increase. On the other hand, if there are complementary goods, the cross-price elasticity would be negative, implying that as the price of complements increases, the demand for dates would decrease.

    Again, without specific information about the availability of substitutes and complements for dates, it is challenging to determine the precise cross-price elasticity of demand. However, considering that dates are a unique fruit with distinctive taste and nutritional properties, it is likely that there are relatively few close substitutes available. Therefore, we can expect the cross-price elasticity of demand for dates to be low or even negative, indicating that the demand for dates would be less affected by changes in the prices of other goods.

    Assuming that biotechnologists were able to develop a new variety of dates called “Madjool” that is more efficient in input use and more productive, the total product curve for dates would shift upward and to the right. This means that with the introduction of the improved variety, the output of dates at any given level of inputs would increase. The new variety would allow farmers to achieve higher yields with the same amount of inputs or maintain the same level of output with fewer inputs.

    With better input use and a more productive variety, the marginal cost (MC) curve would likely shift downward due to the increased efficiency in production. This means that it would cost less to produce each additional unit of output. The average total cost (ATC) curve would also shift downward, reflecting the reduction in per-unit costs. The average variable cost (AVC) curve would be affected similarly.

    The consequences of better input use and a productive variety would be twofold. Firstly, the output of dates would increase as farmers can produce more with the same resources or produce the same amount with fewer resources. This increase in supply could potentially lead to lower prices for dates, assuming that demand remains relatively stable. Secondly, the lower production costs would improve the profitability of date production, as the lower costs per unit would allow producers to achieve higher profit margins.

    If the US state of California were able to develop and plant a new variety of dates named “Madjool,” the entry of Madjool dates into the market would have implications for a firm’s profit and output. The introduction of a new variety could potentially increase competition in the market, as consumers may have more options to choose from. This increased competition might lead to downward pressure on prices, affecting the profitability of existing date producers.

    However, if the Madjool dates offer unique qualities or attributes that differentiate them from existing varieties, they could command a higher price in the market. This would potentially increase the profitability of firms producing Madjool dates. The overall impact on a firm’s profit and output would depend on various factors, including the market demand for Madjool dates, the pricing strategy adopted by producers, and the ability to effectively market and differentiate the new variety.

    In conclusion, analyzing the trade data for Dates (Thamar) from FAO for Morocco, we estimated the price elasticity of import and export, compared and contrasted their values, discussed the expected income elasticity of demand and cross-price elasticity of demand for dates. Additionally, we explored the consequences of a new and more productive variety of dates on output and prices, as well as the implications of the entry of a new variety into the market in terms of a firm’s profit and output. These analyses provide insights into the dynamics of the date market and its potential responses to changes in price, income, and variety offerings.