Nov 4, 2019
Observing the rise of the toast-spreading popularity of avocados and the timeless love of guacamole, our team at Econ Eye thought it would be worthwhile to look at the market for avocados.
In August each year, the Californian avocado crop winds down and the Mexican crop takes over. But if Mexican production does not increase enough to replace the Californian crop, the quantity of avocados produced decreases and the price rises.
The table below provides some data on the quantity and price of avocados at the end of July and the start of September. The data are for 2018 but the pattern is similar most years. What does the data tell us?
The data tell us that the quantity of avocados produced decreased by 25% from 48 million pounds in July to 36 million pounds in September, and the price rose by 25% from $1.03 to $1.29 per avocado during that time.
We see that the price of avocados is increasing. We know this could be due to a change in demand or a change in supply (or both).
This motivates our main question:
Did the price rise because the demand increased or because the supply decreased?
We can answer this question from the information provided. We know that an increase in demand brings a rise in the price and an increase in the quantity traded, while a decrease in supply brings a rise in the price and a decrease in the quantity traded.
Because the quantity of avocados bought decreased and the price increased, the supply of avocados must have decreased.
The information that Californian production wound down before Mexican production fully ramped up tells us that avocado production decreased, which decreased the supply.
The figure illustrates the market for avocados during 2018.
Now take this short quiz to check that you understand what you have just read.
Mulitple Choice Quiz: Why are avocado prices skyrocketing?