Economics Olive Oil

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As olive oil has become a global product, manufacturers have found opportunities to harvest elsewhere. From Australia, which produces 20,000 tonnes a year, to California, which produces 7,000 tonnes a year; an increase in firms equates to an increase of supply. However, this is nothing compared to Spain’s 1.3 million tonnes from last year. Therefore, it does not create a significant outward shift in the supply curve. Nonetheless, it is arguable that the increase in international olive oil producers correlates with the trends seen with international winemakers. America’s olive-oil exporters are estimated to have as much as 5% of the global output by 2017. Spanish exporters should be concerned. Not only is there a rising threat of olive-oil production elsewhere, such as America, but Spain is affected by the Euro crisis. It is more than likely that Government subsidies are scarce, decreasing production supply greatly. Further, if there is no improvement in the weather, producers cannot rely on bumper crops from the year before, like they have this year. There will be no choice but for importers to choose other producers, for olive oil. Model 3 illustrates the effect that this will have on the supply and demand of olive-oil in Spain. A decrease in Government subsidies causes a decrease in supply, shifting the supply curve inwards. The closure of olive-oil factories, as a result of bad weather which effected the growth of olives further decreases supplies causing an inward shift. Hence, the equilibrium price increases from OE to OF and the quantity bought/sold in equilibrium falls from OB to OA.
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