Agribusiness Management_Finding market boundaries and spatial price structure

Agribusiness Management 420
Topic: Finding market boundaries and spatial price structure
Background
As we will see in class, the simple economics of arbitrage provides us with a means for defining the geographic area that can be thought of as a spatial market. It also leads to understanding how prices in one market are transmitted to another! In this exercise, you will review important concepts and put them to use in the context of your product to analyze the spatial dimensions of your product’s markets and price transmission.
1) If you just look at prices for source and destination countries from the last assignment, could you predict whether trade flows link the locations? If so, from which locations do products originate and to which locations do the product flow?
2) Review the economic concept of spatial arbitrage. Describe the spatial arbitrage that occurs for your product. From where does supply move and to where does it move? Does supply come from production at a multitude of spatial locations, e.g. with raw milk? Does supply come from only a small set of locations, e.g. with automobiles or tractors. Produce a table or figure that presents “evidence” that
supports your discussion and prepare text that provides a useful description of the origins of supply within the “home” market you are studying.
3) For your product, identify the spatial locations of the origins of its current demand. Does demand exist at a multitude of spatial locations, e.g. as with retail demand for yogurt? Does it come from only a small set of locations, e.g. as with demand for raw milk by dairy processors. Produce a table or figure that presents a useful description of the origins of demand within the “home” market you are studying.
4) What is the share of total supply for your product that is exported from your “home” market? Using data you collected compute the export share of total supply (export quantity/total supply quantity). Graph this over time.
5) What is the share of total utilization for your product that is imported into your “home” market? Collect data and compute this share. Prepare a graph of this share and revise the graph in 1) to prepare a graph of export and import shares over time.
6) Describe the frequency of spatial arbitrage. Is it continuous, seasonal, periodic, or random? Does it change directions over time (importing sometimes, exporting sometimes)? Is product imported and exported at the same time? Prepare a summary paragraph that presents your best explanation of why these patterns might exist.

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