The Effects of Changes in Tea Prices on the Economies of the Countries Concerned

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The tea market is affected by price volatility and it is influenced by a number of factors both internal as well as external to the market. The tea industry in India employs approximately 10 million persons. The revenue obtained from the production and export of tea has a direct influence on the GDP of major tea producing countries. The two largest producing countries, India and China generate significant revenues that influence the amount of financial resources available to fund the government’s macroeconomic policy and strategic development plans. The revenue derived from the sale of tea directly influence the GDP of tea producing countries such as India and China, this revenue is used by governments to fund various social and public service initiatives in which the entire population of the respective country would benefit and not necessarily only tea workers As tea prices increase profits in producing companies increase. This will lead to increased investments in the industry thereby employing more people. Greater employment results in increased income of the total population hence increasing national income. The investments made by producers to increase output to enjoy the high commodity prices will increase national output. On the down side, as prices fall it becomes difficult for small producers are likely to go out of business due to profits being less than operating cost. The larger producers will cut its production in an effort to reduce supply, hence lower labor volume required. Ultimately jobs will be lost and given the large number of persons employed will have a significant impact on the country ranging from high unemployment levels to reduced government revenues.

Using the concepts of competition and market power, explain whether a rise in tea prices in the shops will necessarily mean a rise in the price for tea growers and in the wages of workers in the tea industry. The two major players in the Indian tea market are Hindustan Unilever and...
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