HS2904 Driving towards the Future: BEVs Review of Economic Concepts PDF

HS2904 Driving towards the Future: BEVs Review of Economic Concepts L1, 2 and 5 Chp 1, 2 and 4 1 Learning Objectives After completing the quiz and revision, your understanding of economic concepts related to the EV industry should be reinforced. You can u...

HS2904 Driving towards the Future: BEVs Review of Economic Concepts L1, 2 and 5 Chp 1, 2 and 4 1 Learning Objectives After completing the quiz and revision, your understanding of economic concepts related to the EV industry should be reinforced. You can use/apply some of these economic terminology learnt (e.g. trade-offs and internalization of externalities) to discuss complex real life issues such as climate change 2 HS2904 Driving towards the Future: BEVs Chapter 1a Why Chemistry and Economics as basis for this module? "Climate change: The ultimate challenge for Economics" – Nordhaus, co-winner of Nobel Prize for Economics in 2018 Market failures in Environmental Realm: The incomplete systems of property rights and mitigating policies Industrial Organization: How efficient production is organized Supporting Consumer Adoption: Understanding consumers' preferences and constraints 3 Learning Objectives What is Economics all about – Choice under Scarcity 5 Core Principles of Economics How do economists value and decide – Opportunity Cost To ponder: Why & how should we integrate ideas from economics into our study of BEVs 4 Core Principles of Economics 1. The study of economics would be superfluous if __________ did not exist. A. profit B. scarcity C. demand D. capital E. corporations 5 Why Economics - the study of choice under scarcity Scarce: Deficient in quantity compared with the demand. Insufficient to satisfy needs or wants. Individuals face a scarcity of resources, e.g., money, time. Society faces a scarcity of resources. Labour Capital: physical capital and human capital Land and natural resources Entrepreneurship 6 5 Core Principles of Economics 1. S carc it y Implies Trade-Offs 2. Bargaining S trength C om es T hrough Scarcity 3. C o m p a re Costs and Benefits 4. People Respond t o Changes in Cost s and Benefits 5. Focus on You r Co m pa rat i v e Advantage 7 1. Scarcity Implies Trade-Offs We have unlimited wants and limited resources. Hence having more of one good thing usually means having less of another. Examples: 1. Labour-leisure trade- off: Having more money to buy stuff requires working more hours, which leaves less time for leisure. 2. Growth-emission trade-off? 3. Inter-generational trade-offs? Figure source. The World Bank. 2021. ‘World Development Indicators.’. https://doi.org/10.7927/H4X928CF 8 2. Bargaining Strength Comes Through Scarcity Scarce resources command high prices. Examples: Why are diamonds so much more expensive than water? Do we will have enough reserves or resources of key metals such as Li, Co, Ni, Cu, Al, Mn or P required for Li-ion traction batteries, and at what price? Where can these resources be found? 9 3. Compare Costs and Benefits An action should be taken if, and only if, the benefit is at least as great as the cost. Examples: When one considers whether to attend university, one compares the fees and foregone wages to the extra income one could earn with a university degree. When one considers buying an EV, one will assess if the benefits one can gain over the lifespan of the car exceeds the cost of its ownership. 10 Core Principles of Economics 2. The idea of opportunity cost suggests that the cost of a particular choice should be measured by the A. amount of the good consumed. B. sum of the costs of all foregone opportunities. C. price of the good chosen. D. price of the good divided by income. E. value of the best alternative sacrificed. 11 Opportunity Cost Making decisions requires comparing the costs and benefits of alternative choices. The opportunity cost of an action X is the explicit cost of X plus the implicit cost of X The explicit cost of action X , is the direct cost (e.g. monetary sacrifice), i.e. the cost of X that is independent of the attributes of any alternative to X. The implicit cost of action X, is the value of the best forgone alternative, which is the maximum value of the benefit to the decision maker minus the explicit cost, for an alternative to X. Adapted from Stone, Daniel F. "Clarifying (opportunity) costs." The American Economist 60, no. 1 (2015): 20-25. 12 Opportunity Cost – A Numerical Example Suppose you have to choose one of 3 options: a new bag, a new book or a dinner out with a new friend. Should you go for dinner? bag book dinner Explicit costs in $ (EC) 50 50 30 Value of benefit in $ to you (VB) 70 60 55 VB-EC 20 10 Implicit cost of dinner is the maximum value of the benefit to the decision maker minus the explicit cost for an alternative to X (i.e. best alternative) Max {(70-50),(60-50)} = Max {20,10} = 20 Opportunity cost of dinner is the explicit cost plus the implicit cost 30+20=50 Since opportunity cost is less than 55 (the benefit of going for dinner) → 13GO! Core Principles of Economics 3. If you own a carpark and you decide to use that carpark to set-up an EV charging station: A. there is no opportunity cost of using this carpark for an EV charging station because you own it. B. the only cost relevant to this decision is the price you paid for the carpark. C. there is an opportunity cost of using this building for an EV charging station because it could have been used in other ways. D. none of the options available is correct. 14 Opportunity Cost (non-technical definition) Making decisions requires comparing the costs and benefits of alternative choices. The opportunity cost of any choice is whatever must be given up when we make that choice. This includes explicit and implicit costs. Explicit cost: monetary sacrifice or direct cost of Implicit cost: non-monetary sacrifice, e.g., time When the alternatives to a choice are mutually exclusive, the implicit cost of the choice is the value of the next best alternative. 15 4. People Respond to Changes in Costs and Benefits The likelihood of taking an action rises as the benefit rises, and falls as the cost rises. Examples: 1. In Hong Kong, the Netherlands, and Taiwan, a plastic bag charge resulted in about 80%, 70%, and 60% decrease respectively in the number of plastic bags given out. 2. MOT introduces policies to reduce relative cost of buying an EV to promote a change in consumption. https://www.mot.gov.sg/what-we-do/green-transport/electric- vehicles#:~:text=EV%20Early%20Adoption%20Incentive%20(EEAI,a 16 nd%20internal%20combustion%20engine%20cars. 5. Focus on Your Comparative Advantage Everyone gains when each individual (or each country) concentrates on the activities in which one can produce at a lower cost than anyone else. Examples: Brazil produces oranges, India produces mangoes, and the U.S. produces strawberries. Indonesia, using its supplies of nickel laterite ore, to carve a niche in the lithium battery production chain. China’s dominance in Picture source: https://www.scmp.com/business/companies/article/3106817/china-leads- battery production industry-powers-electric-cars-country-mile-what-will 17 HS2904 Driving towards the Future: BEVs Chapter 2 Markets and the Environment 18 Learning Objectives Two key thematic questions 1. What factors drive the prices of minerals used in EVs – How markets work? 2. Why is it so challenging to manage the environmental issues related to economic growth and the EV-ecosystem? Part 1 – Demand, supply, equilibrium and efficiency of markets What is a market? Who decides what gets produced, at what quantity, and at what price? Part 2 – Why markets may fail or may be missing? What can regulators do? Externalities, public goods & common resources How does market failure affect the environment? Policies to improve efficiency 19 Part 1 – Demand, supply, equilibrium and efficiency of markets 20 Markets A market economy allocates resources through the decentralized decisions of households and firms as they interact in markets for goods and services. A market is a group of buyers and sellers of a particular good or service. Buyers, as a group, determine the demand for the product. Sellers, as a group, determine the supply of the product. In perfectly competitive markets: Goods and services are practically identical. Buyers and sellers are so numerous that no one can affect the market price — everyone is a price taker. 21 How economists model the market What is a model? A model is a human construct or representation to help us better understand the real world system. It is an abstraction of the real world. "All models are wrong but some are useful." George E.P. Box "Make your theory as simple as possible, but no simpler." A. Einstein Like the model of an atom, models are subjected to continuous refinement to suit the questions to be addressed. ”The choice among alternative hypotheses equally consistent with the available evidence …suggested by the criteria “simplicity” and “fruitfulness,”… A theory is “simpler” the less the initial knowledge needed to make a prediction within a given field of phenomena; it is more “fruitful” the more precise the resulting prediction, the wider the area within which the theory yields predictions, and the more additional lines for further research it suggests.” M. Friedman 22 How economist model the markets: The supply and demand model The supply and demand model shows how supply and demand determine prices in a market economy how prices allocate the economy’s scarce resources 23 Supply and Demand Model, Adam Smith’s “Invisible Hand” and Market Equilibrium 4. The "law of demand" implies: A. as prices rise, quantity demanded increases. B. as prices fall, quantity demanded increases. C. as prices rise, demand increases. D. as prices fall, demand increases. 24 Demand Quantity demanded Is the amount of a good that buyers are willing and able to purchase Law of demand States that other things equal, When the price of a good rises, the quantity demanded of the good falls When the price falls, the quantity demanded rises Demand Is the relationship between the price of a good and quantity demanded Demand curve Is a graph with Price on the vertical axis & Quantity on the horizontal axis Individual demand An individual’s demand for a product is related to the maximum amount one is willing to pay for the product (willingness to pay). i.e. how the buyer values the product. 25 The Individual Demand Curve P Price of Quantity of $12 avocado avocado smoothie in smoothie $10 $ demanded 0 16 $8 2 14 $6 4 12 $4 6 10 $2. 8 8 10 6 $0 Q 0 5 10 15 12 4 26 Market Demand vs. Individual Demand The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. (Sum the individual demand curves horizontally.) Suppose Alice and Ben are the only two buyers in the avocado smoothie market. Price in $ Alice’s Q D Ben’s Q D Market Q D 0 16 + 8 = 24 2 14 + 7 = 21 4 12 + 6 = 18 6 10 + 5 = 15 8 8 + 4 = 12 10 6 + 3 = 9 12 4 + 2 = 6 27 The Market Demand Curve for avocado smoothies P QD P in $ $12 (Market) $10 0 24 2 21 $8 4 18 $6 6 15 $4 8 12 $2. 10 9 12 6 $0 Q 0 5 10 15 20 25 28 Demand Curve Shifters The demand curve shows how price affects quantity demanded, holding other things equal. These “other things” are the non-price determinants of demand I.e., things that affect buyers’ demand for a good other than the good’s price E.g. Number of buyers, Income, Price of related goods, Taste, Expectations Changes in these shift the demand curve 29 Variables that Influence Buyers Variable A change in this variable Price … causes a movement along the D curve Number of buyers … shifts the D curve Income … shifts the D curve Price of related goods … shifts the D curve Tastes … shifts the D curve Expectations … shifts the D curve 30 Supply Quantity supplied Is the amount of a good that sellers are willing and able to sell Law of supply States that other things equal, When the price of a good rises, the quantity supplied of the good rises When the price falls, the quantity supplied falls Supply Is the relationship between the price of a good and quantity supplied Supply curve Is a graph with Price on the vertical axis & Quantity on the horizontal axis Individual (firm) supply An individual (firm) supply for a product is related to the minimum amount one is willing to sell the product (willingness to sell). i.e. the cost to produce the product. 31 The Individual’s (firm’s) Supply Curve P Price of Quantit avocado y of $12 smoothie avocado $10 in $ smoothie supplied $8 0 0 $6 2 3 $4 4 6 6 9 $2. 8 12 $0 Q 10 15 0 5 10 15 20 25 12 18 32 Market Supply vs. Individual’s (Firm’s) Supply The quantity supplied in the market is the sum of the quantities supplied by all sellers at each price. (Sum all individual firm’s supply curves horizontally.) Suppose Lean and Mean are the only two sellers in the avocado smoothie market. Price in $ Lean’s Q S Mean’s Q S Market Q S 0 0 + 0 = 0 2 3 + 2 = 5 4 6 + 4 = 10 6 9 + 6 = 15 8 12 + 8 = 20 10 15 + 10 = 25 12 18 + 12 = 30 33 The Market Supply Curve P QS $12 P in $ (Market) $10 0 0 $8 2 5 4 10 $6 6 15 $4 8 20 $2. 10 25 12 30 $0 Q 0 5 10 15 20 25 30 34 Supply Curve Shifters The supply curve shows how price affects quantity supplied, holding other things equal. These “other things” are the non-price determinants of supply I.e., things that affect seller’s supply of a good other than the good’s price E.g. Number of sellers, Number of sellers, Input prices (e.g. wage cost), Technology, Weather and Expectations Changes in these shift the supply curve 35 Variables that Influence Sellers Variable A change in this variable Price … causes a movement along the S curve Number of sellers … shifts the S curve Input prices … shifts the S curve Technology … shifts the S curve Weather … shifts the S curve Expectations … shifts the S curve 36 Supply and Demand Model, Adam Smith’s “Invisible Hand” and Market Equilibrium 5. Equilibrium is the condition that exists: A. when quantity demanded equals quantity supplied. B. whenever there is no government intervention in the market. C. when the demand curve intersects the price axis. D. when demand curve intersects the quantity axis. 37  Supply and Demand Together - Equilibrium P Equilibrium: a state in which opposing forces are balanced so that one is not greater than the other. $12 D S Equilibrium: $10 P has reached the level where Quantity supplied = Quantity $8 demanded P* $6 Q S = Q D= Q * $4 P* is known as the equilibrium price. Q* is known as the equilibrium $2. quantity traded in the market. $0 Q 0 5 10 15 20 25 30 Q* 38 Supply and Demand Model, Adam Smith’s “Invisible Hand” and Market Equilibrium 6. The market for lithium (Li) is presently characterized by excess demand. You can predict that the price will: A. increase, the quantity demand will rise, and the quantity supplied will fall. B. decrease, the quantity demand will fall, and the quantity supplied will rise. C. increase, the quantity demand will fall, and the quantity supplied will rise. D. decrease, the quantity demand will rise, and the quantity supplied will fall. 39  Supply and Demand Together - Equilibrium P QD 20, 1 social cost of the last litre is 0 greater than its value 0 10 20 25 30 Q to society. (liters) 60  Analysis of Negative Externality P The market for petrol $5 Social Market equilibrium cost 4 (Q = 25) S is greater than 3 social optimum (Q = 20). 2 One solution: D tax sellers 1 $1/litre, would shift 0 S curve up $1. 0 10 20 25 30 Q (liters) 61 “Internalizing” the Externality Internalizing the externality: altering incentives so that people take account of the external effects of their actions In our example, the $1/litre tax on sellers makes sellers’ costs = social costs. When market participants must pay social costs, market equilibrium = social optimum. Imposing the tax on buyers would achieve the same outcome; market Q would equal optimal Q. People Respond to Changes in Costs and Benefits 62 Effects of Externalities: on Equilibrium Quantity If negative externality, market quantity larger than socially desirable If positive externality, market quantity smaller than socially desirable To remedy the problem, “internalize the externality”. E.g. tax goods with negative externalities subsidize goods with positive externalities 63 Externalities and Market Inefficiency 11. On 8th June 2022, the European Parliament lawmakers voted to support an effective EU ban on the sale of new petrol and diesel cars from 2035, to speed EU’s adoption of electric vehicles. This is an example of: A. Coase Theorem B. Pigouvian taxes and subsidies C. command-and-control policies D. tradable permits 64 Public Policies Toward Externalities Two approaches: 1. Command-and-control policies regulate behaviour directly. Examples: limits on congestion or quantity of pollution emitted requirements that firms adopt a particular technology to reduce emissions Picture from: http://uk.reuters.co m/article/2008/06/ 20/beijing-car-ban- idUKNOA03972720 080620 Picture from: http://www.theatlantic.com/business/archive/2 015/09/volkswagen-scandal-cheating-emission- Picture from: https://www.motorist.sg/coe-results 65 virginia-epa/407425/ Public Policies Toward Externalities 2. Market-based policies provide incentives so that private decision-makers will choose to solve the problem on their own. Examples: corrective taxes and subsidies tradable pollution permits Pictures from: https://www.econom ist.com/finance-and- economics/2022/05/ 26/carbon-markets- are-going-global and https://www.lta.gov.s g/content/ltagov/en/ newsroom/2022/7/n ews-releases/revised- erp-rates-from-1- august-2022.html 66 Corrective Taxes & Subsidies Corrective tax: a tax designed to induce private decision-makers to take account of the social costs that arise from a negative externality Also called Pigouvian taxes after Arthur Pigou (1877-1959). For activities with negative externalities, the ideal corrective tax would equal the external cost. For activities with positive externalities, the ideal corrective subsidy would equal the external benefit. Picture from: https://en.wikipedi a.org/wiki/Arthur_ Cecil_Pigou 67 Private Solutions to Externalities The Coase theorem: If private parties can bargain, without cost, over the allocation of resources, they can solve the externalities problem on their own. Whatever the initial distribution of rights, interested parties can reach a bargain: Everyone is better off Outcome is efficient Ronald Harry Coase (1910 – 2013) Nobel Prize in Economics (1991) https://en.wikipedia.org/wiki/R onald_Coase 68 Why Private Solutions Do Not Always Work 1. Transaction costs: The costs parties incur in the process of agreeing to and following through on a bargain. These costs may make it impossible to reach a mutually beneficial agreement. 2. Stubbornness: Even if a beneficial agreement is possible, each party may hold out for a better deal; so the bargaining breaks down. 3. Coordination problems: If the number of parties is very large, coordinating them may be costly, difficult, or impossible. 69 Taxonomy of Goods – Classify along 2 dimensions 1. A good is excludable if a person can be prevented from using it. Excludable: cable TV Not excludable: fish in the international waters 2. A good is rival in consumption if one person’s use of it diminishes other people’s use of it. Rival: hamburger Not rival: national defence 70 Public Goods and Common Resources 12. Public goods are: A. non-rival in consumption and their benefit are non-excludable. B. rival in consumption and their benefit are non-excludable. C. rival in consumption and their benefit are excludable. D. non-rival in consumption and their benefit are excludable. 71 The Different Kinds of Goods Goods can be grouped into four categories according to two characteristics Rival Not Rival Excludable Private Good Natural Monopoly e.g. hamburger Or Club Good e.g. cable TV Not Excludable Common Resource Public Good e.g. fish in the e.g. national defence international waters & the environment 72 Public Goods & Role of Government Since public goods are not excludable & non-rivalrous, people have incentive to be free riders. A free rider is a person who receives the benefit of a good but avoids paying for it. Firms do not produce the good, even if the cost of providing the good is less than the collective benefit of the good. The free-rider problem prevents the private market from supplying the goods →Market failure → Government can use tax revenue to supply a good that the market fails to supply If the benefit of a public good exceeds the cost of providing it, the government should provide the good and pay for it with a tax on the people who benefit from it, to make society better off. 73 Public Goods and Common Resources 13. A harbour lighthouse that guides approaching ships is an example of: A. a negative externality. B. a private cost C. a public good. D. a good that is rival. 74 Common Resources Common resources are not excludable. Free riders cannot be prevented from using them. There is little incentive for firms to provide them. Role for the government: ensure that these goods are provided. Furthermore, common resources are rival in consumption. Each person’s use of a common resource reduces others’ ability to use it. Role for the government: ensuring that these goods are not overused (that is they can be provided for in a sustainable manner). 75  Public Goods and Common Resources 14. The current climate change crisis is typically considered as an example of the ______ on a global scale. A. excludability in consumption benefits B. principle of comparative advantage C. efficiency of the markets D. tragedy of the commons “The Earth is what we all have in common.” Wendell Berry Source: https://commons.wikimedia.org/wiki/File:Earth_%2816530938850%29.jpg 76 Tragedy of the Commons: Economics & Fragility of our Biosphere The tragedy of the commons Illustrates why common resources are overused. Describes many environmental problems like overfishing and climate change Negotiated agreements can solve the tragedy of the commons; the market participants just need to find a way to align their individual incentives with the goals of the group as a whole. E.g., Agree to keep the fishery, water supply, air-pollution control sustainable by using a tradable permit system. Agree to impose a carbon tax on fossil fuels. 77 Common Resources & Role of Government Policies to prevent overconsumption of common resources include: Privatize the resource, e.g., convert land to a private good by dividing and selling parcels to individuals → make the resource excludable, hence a private good Regulate the use of the resource, e.g., Beijing’s license plate policy. → regulate private behaviour Impose a corrective tax, e.g., hunting and fishing licenses, entrance fees for national parks → eliminate free-rider Auction off permits allowing use of the resource, e.g., electromagnetic frequency spectrum. → help define property rights and thereby unleash market forces 78 HS2094 Driving towards the Future: BEVs Chapter 4 The supply chain starts… in the earth Natural Resource Curse 15. An economist would refer to mineral deposits such as carrolite (Cu-Co- sulphides) and laterite (Ni-Co-oxides) as which type of resource? A. Entrepreneurship resource. B. Human capital resource. C. Labour resource. D. Natural resource. 80 Does it mean that the more mineral resources a country have, the better off the country is? Natural Resources (& of GDP) Consider the following 40 economies: 35 Venezuela (oil) and Sierra 30 Leone (diamonds) 25 20 15 What is the natural resource 10 curse? 5 How does it operate? 0 Strategies to mitigate the Sierra Leone Total natural resources rents (% of GDP) Singapore Total natural resources rents (% of GDP) natural resource curse? Venezuela, RB Total natural resources rents (% of GDP) Data source: World Bank Natural Resource Curse Sachs, Jeffrey D., and Andrew M. Warner. "The curse of natural resources." European economic review 45, no. 4-6 (2001): 827-838. “The curse of natural resources” is used to describe the apparent paradoxical observation that countries with great natural resource wealth tend perform badly (e.g., grow more slowly) than resource-poor countries. 82 What explains the curse – the mechanics? Sachs, Jeffrey D., and Andrew M. Warner. "The curse of natural resources." European economic review 45, no. 4-6 (2001): 827-838. 1. Natural Resources crowds-out E.g. Positive shock from the natural activity x resource sector 2. Activity x drives growth. → excess demand for non-traded products 3. Therefore Natural Resources harm → higher non-traded prices, including non- growth. traded input costs and wages x has been identified as traded- → squeezes profits in traded activities such manufacturing activities by Sachs and as manufacturing that use those non- Warner (1995, 1999) and Sachs (1996). traded products as inputs yet sell their products on international markets at relatively fixed international prices → decline in manufacturing → slower growth 83 What explains the curse – the mechanics? Sachs, Jeffrey D., and Andrew M. Warner. "The curse of natural resources." European economic review 45, no. 4-6 (2001): 827-838. Resource abundant countries tended to miss-out on export-led growth. 84 Neither curse nor destiny: clarifying the curse Lederman and Maloney (2007, 2008), among other economists, concluded that “evidence in support of the curse is weak at best.” Reasons include: measurement issues – difficulty of finding good proxies for resource abundance heterogeneity in effects – many different channels through which resource abundance can shape growth Lederman, Daniel, William F. Maloney, Thad Dunning, and Cameron A. Shelton. "In search of the missing resource curse [with comments]." Economía 9, no. 1 (2008): 1-57. 85 Natural Resource Curse 16. Which of the following is NOT a plausible channel for the natural resource curse? A. Crowding out of manufacturing sector. B. Autocratic government that redistributes gains from the exports of natural resources to their cronies. C. Lack of positive spillover from the natural resource sector. D. Volatile prices of manufacturing goods compared to prices of natural resources. 86 Neither curse nor destiny: clarifying the curse Many different channels through which resource abundance can shape growth 1. Volatile or declining price of natural resources compared to manufactured goods 2. Lack of positive spillovers, e.g. in human capital accumulation & technology from natural resource sector 3. Dutch disease (natural resource gaining a share of labour at the expense of manufacturing and other export driving sectors) 4. Interaction of natural resource wealth and institutions of governance – e.g. natural resource wealth → institution weakness or embezzlement → lower productivity or voracity effect (redistribution of export windfall)→persistent low growth Lederman, Daniel, William F. Maloney, Thad Dunning, and Cameron A. Shelton. "In search of the missing resource curse [with comments]." Economía 9, no. 1 (2008): 1-57. 87 Applying Economic concepts and models to our lives 88 What happened to the prices of durians in Jun 2023? Picture source: https://commons.wikimedia.org/ wiki/File:Durian.jpg 89 Supply and Demand Model, Adam Smith’s “Invisible Hand” and Market Equilibrium “Farmers in Malaysia, which supplies more than 85% of Singapore’s durians, have been diversifying into the fruit since 2016 as prices jumped, instead of growing traditional crops like palm oil and rubber. Durian trees take at least five to seven years to start producing, contributing to the bountiful harvest this year.” Bloomberg, Jun 23, 2023. 17. Given the weather conditions and the statements above that led to a bumper crop of durians in 2023, A. The equilibrium price remains unchanged and the equilibrium quantity will remain unchanged. B. The equilibrium price will fall and the equilibrium quantity will increase. C. The equilibrium price will rise and the equilibrium quantity will decrease. D. The equilibrium price remains unchanged, and the equilibrium quantity will increase. 90  Supply Curve Shifter & Supply and Demand Together - Equilibrium P Equilibrium: P has reached the level where $12 D S S new Quantity supplied = Quantity demanded $10 Q S= Q D $8 P* $6 An increase in supply →The equilibrium P* new $4 price will fall and the $2. equilibrium quantity will increase $0 Q 0 5 10 15 20 25 30 Q* Q* new 91  “A surplus in major producer Malaysia has pushed prices in the city-state down to levels never seen before. Premium varieties like Musang King were selling for as cheap as S$3 ($2.24) a kilogram Source: https://www.bloomberg.com/news/articles/2023-06- earlier this month.” 22/singapore-s-durian-lovers-rejoice-as-prices-tumble-on-surplus 92 What happened to the prices of durians in the current season Jul 2024? Picture source: https://commons.wikimedia.org/ wiki/File:Durian.jpg 93 Screenshots from: https://www.channelnewsasia.com/singapore/durian-supply-malaysia-singapore-prices-sale-export-musang-king-4452561 94