Wheat and petrol: Consequences of the conflict in Ukraine on the Australian economy

Australia is an exporter of wheat, supplying to the international market. However, we import most of our petrol. Demonstrate an economic analysis of the market for wheat and petrol in Australia, addressing the following questions:

1. Wheat and the welfare consequences of trade: a. [Basic static analysis of trade] Construct a simple model of the (wholesale) market for wheat globally, and in Australia. Add a brief but clear explanation to accompany your diagrams, and reflect on what access to international trade means for Australian farmers, food manufacturers (e.g. bakeries) and food consumers (i.e. households).

b. [Extended dynamic analysis] The market for wheat is affected by the recent unrest in Ukraine ("Ukraine war could send...", 2022). Wheat prices are reported to have increased 55 per cent even before the invasion, just based on fears of sanctions and disrupted supply, as Russia and Ukraine account for a large portion of global wheat supply. Russia is also a key supplier of fertilisers used by Australian farmers. How can we expect this to affect Australian wheat producers? What flow-on effects might we expect to see in the wider Australian economy?