2009PS 8 Solutions - AEM 4150 Price Analysis Fall Semester...

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AEM 4150 Price Analysis Fall Semester 2009 Homework Assignment 8 Suggested Solutions Question 1 (a) The price of semi-perishable crops rises after the harvest and suddenly drops at the next harvest. The price difference at each point (t) in time P(t)-P1 reflects the price of the storage of one unit of the product between the harvest and that point in time. For instance the price difference P2-P1 reflects the price of storage for the period between two harvests. (b) Stocks can be carried over to the next period, thus while prices still rise after harvest, they might not fall as abrupt as they do in case (a). But due to the large anticipation of the next harvest, prices will still decline. Producers liquidate remaining stocks before price falls due to next harvest. Then the increase in supply leads to the fall in prices. Basically the difference with (a) is that the differences in prices are smaller and that the changes are less abrupt. time P1 P2 Price harvest harvest time P1 P2 Price 1
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(c) Price Time t* t1 P1 P2 t2 back to normal P* t3 At time t1, price rises with storage costs. The increase in price is higher than the normal harvest price. At time t*, price jumps to p*. This reflects the small expected harvest
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2009PS 8 Solutions - AEM 4150 Price Analysis Fall Semester...

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