Price and Quantity of Milk

¶ … price and quantity of milk in different situations where they are influenced by different factors. The second section of the paper describes the factors that determine price elasticity of demand. The third section analyzes the type of elasticity of milk, based on its determinant factors. The paper continues with a section that analyzes total revenues in case the price of milk increases.

A) Cereal and milk are complementary goods. This means that if more people start eating cereal for breakfast, these people are likely to start drinking milk with these cereals. In other words, the demand for milk will increase. However, the people that start eating cereals can include people that were already drinking milk for breakfast and that will not modify the quantity of milk they drink, they will only modify how they drink it. This category of customers cannot affect the demand for milk. If milk demand and supply increase, the price of milk is likely to remain constant. If milk demand increases and supply remains constant, the price of milk increases.

b) in case there is a mad cow epidemic the milk demand is likely to significantly decrease. But the milk supply remains constant, leading to milk supply surplus. This means that milk prices are likely to significantly reduce as a result of reduced demand. As a consequence, this leads to increased demand for substitute products, like powder milk.

c) if the price of milk increases, this could lead to reduced demand for this product. In addition to this, the demand for complementary products like cereals can decrease also. Another effect of price of milk increasing is that products with milk as an ingredient can increase their price, which can determine reduced demand for such products (Investopedia, 2012).

d) if the government decides to implement a price ceiling on milk, this refers to establishing the maximum price that sellers can charge for milk. In this case, sellers are not as interested in this product, leading to reduced supply. The milk supply would be smaller than the milk demand, leading to a shortage in this product.

2. The price elasticity of demand is an indicator used in order to determine the reaction of the quantity demanded from a certain product to a change in the price of that product. Rice elasticity of demand can be relatively elastic or relatively inelastic. Relatively elastic products are those where price elasticity of demand is greater than 1. Relatively inelastic products are those where price elasticity of demand is less than 1.

There are several factors that influence the price elasticity of demand of a product. These factors are represented by the number of substitutes, degree of necessity, and the price of that product in comparison with the income. Regarding the number of substitutes, if there are numerous substitute products on the market of a certain product, this will increase the possibility and access of households of switching to these products in the situation in which the price of the product in case increases. The price elasticity of demand is proportional to the number of substitutes of the product in case. In other words, elastic products are those with a larger number of substitutes.

Regarding the degree of necessity, if the product in case is something of necessity, it is likely that its demand will not change in accordance with price variations. Therefore, an increase of the price will not determine a reduction of the demand as it would normally do in the case of other products (Rittenberg & Tregarthen, 2009). In other words, necessity products have inelastic price elasticity of demand.

The price of the product as a proportion of the income is another factor that determines the price elasticity of demand. This is because products that hold a high proportion of customers' income are rather elastic. In these cases, customers can easier identify the modifications in the prices of such products. Important price modifications of expensive products can determine customers to reduce their demand of such products.

3. In order to determine the type of elasticity of milk, it is important to analyze the product in accordance with the factors that determine products' price elasticity of demand. Regarding the number of substitutes, milk has little substitute products. These are represented by powder and condensed milk. However, it is rather unlikely that such substitute products can significantly influence the milk demand. Therefore, from this point-of-view, milk can be considered a rather inelastic product.

There are several situations that must be taken into consideration when analyzing the price elasticity of demand in the case of milk regarding the degree of necessity. These situations refer to regions with high consumptions of milk and regions with low consumption of milk. In Northern European countries that report high consumption of milk, this product is a necessity and is inelastic. In poor countries, the consumption of milk is lower, and there are lower numbers of customers that frequently purchase milk. In such countries, milk can be considered elastic rather than inelastic. The same situation can be applied to rural areas where people make their own milk, and only some of them have to purchase it.

Regarding the price of milk as a proportion of customers' income, there are also certain differences between different regions. In countries with higher GDP people have higher incomes, and the price of milk represents a smaller proportion of these incomes (Schenk, 2009). Therefore, these customers are less aware of price modifications in the case of milk. This means that milk can be considered an inelastic product. But in countries with lower GDP the price of milk represents a larger proportion of the income of customers in these countries, making them more aware of price modifications.

4. If the price of milk increases, its demand will remain constant because milk is considered an inelastic product. This means that modifications in its price are not likely to determine modifications in the milk quantity demanded by customers. In this situation, if the price of milk increases, total revenue will also increase. Total revenue is determined by multiplying the price of the product with the demanded quantity of that product.

In the case of inelastic products, the demanded quantity remains constant if the price increases, leading to increased total revenue. Therefore, in case the price of milk increases, the quantity demanded will be the same, determining increased total revenue of sellers. This situation is determined by the fact that milk is an inelastic product.

However, other situations must also be taken into consideration, even if they do not represent the rule. These situations refer the cases where milk can be considered an elastic product. Prices adjust to different economic factors that determine them (Roberts, 2007). If the price of milk increases in regions where milk has a stronger price elasticity of demand than this can lead to reduced demand of milk. This is because customers in these regions are more sensitive to price modifications.

In other words, they might not be willing to pay more in order to purchase the same quantity of milk. Instead, they could prefer to purchase less milk for the same amount of money. In this case, it is expected that total revenue will be reduced because the demanded quantity reduces. However, each situation is different. This means that total revenue can increase or remain constant if the demanded quantity is reduced, depending on the value of the increased price. Therefore, it is important to determine the issues that influence the intentions of customers in buying different products.

Reference list:

1. Demand and Supply (2012). Investopedia. Retrieved March 6, 2012 from http://www.investopedia.com/university/economics/economics3.asp#axzz1oMkwb73V.

2. Rittenberg, L. & Tregarthen, T. (2009). Principles of Microeconomics. Retrieved March 7, 2012 from http://catalog.flatworldknowledge.com/bookhub/reader/21?e=rittenberg-chab.

3. Schenk, R. (2009). Overview: Elasticity and Revenue. Retrieved March 7, 2012 from http://ingrimayne.com/econ/elasticity/OverviewEl.html.

4. Roberts, R. (2007). Where Do Prices Come From? Library of Economics and Liberty. Retrieved March 7, 2012 from http://www.econlib.org/library/Columns/y2007/Robertsprices.html.

Micro Economics MOD 2 SLP

1. The company provides a wide range of organic products. There are several factors that influence the demand for such products. The most important factors are represented by the price of organic products, the incomes of customers, their preferences, and others. It is a well-known fact that organic products are more expensive than traditional products. This is an important reason that keeps most people from buying them. It is expected that the demanded quantity of organic products will reduce if prices increase.

The income of customers is very important in determining their behavior towards purchasing organic products. It has been observed that people with medium to higher incomes are the most important organic products buyers. Therefore, if their incomes increase, it is expected that the demanded quantity of organic products will also increase. Another important factor in determining the demand in this case is represented by customers' preferences. In other words, the different lifestyle trends can influence this demand. There is a trend that refers to developing a healthy lifestyle, based on organic products. The interest of certain categories of public in promoting this trend has significantly intensified. Therefore, the demanded quantity of organic products is likely to increase.

2. There are several factors that influence the organic products supply. The most important factors are represented by prices, costs of production, prices of traditional products, weather, and technology. In the case of the influence of prices, if they increase the supplied quantity of organic products is likely to increase also, because the company is interested in increasing its profits. The costs of production are also very important. If these costs increase, it will be more difficult for the company to produce these products, leading to reduced supply.

The prices of traditional products can determine the purchasing behavior of organic products buyers. If prices of traditional products increase, becoming similar to those of organic products, some of these customers can orient towards organic products, leading to higher demand and higher supply. The weather is important in agriculture. If the production of organic products is not supported by proper weather, it is likely the supplied quantity will be reduced. If technological developments increase, they are likely to determine an increase in the supply of organic products.

3. The government's influence on wages can significantly influence the activity of the company. The strategy of increasing the minimum wage by the government has both positive and negative effects on the company. The advantage relies on the fact that by increasing the minimum wage, people's incomes would increase. In other words, they would have more money to spend on different products. This means that the company could increase its number of customers and its sales. The disadvantage is represented by the fact that the company would have to increase the wages of its employees. This leads to increased production costs and prices.

4. There are several advantages and disadvantages to price controls. The advantages are represented by the fact that customers benefit from lower prices. In addition to this, the strategy can lead to higher incomes for producers (Pettinger, 2011). This is usually the case of farmers and other producers in agricultural activities. The most important disadvantages are represented by the fact that such strategies lead to supply shortage or excess (Hammond, 2012).

In my opinion, the governments' influence on prices should be reduced, because it usually leads to modifying normal relationships and phenomena on the market. But in industries like organic products they can help, because they can lead to increased incomes for producers. Therefore, it is important to determine the effects of government's influence on each type of industry and on different issues of production.

Reference list:

1. Pettinger, T. (2011). Price Controls: Advantages and Disadvantages. Retrieved March 8, 2012 from http://www.economicshelp.org/blog/621/economics/price-controls-advantages-and-disadvantages/.

2. Hammond, M. (2012). Advantages and Disadvantages of a Price Ceiling. Retrieved March 8, 2012 from http://smallbusiness.chron.com/advantages-disadvantages-price-ceiling-25210.html.

Micro Economics MOD 3 CS

1. The restaurant industry is characterized by development in certain sectors. The fast food sector is such a developing sector. There are several factors that lead to the development of fast food restaurants. The most important factor is represented by the increased demand for fast food products. This increased demand is determined by the smaller prices of fast food in comparison with traditional restaurants. The proportion of the cost of eating at a fast food in customers' incomes is sometimes smaller than eating healthy foods that cost more. Customers' preferences are also very important in determining the fast food demand. This mostly refers to customers' lifestyle. Many of them eat at fast food restaurants because they save time and money.

In this case, the fast food restaurant is developing because of an increased number of customers. This means there is a higher demand for the restaurant's products and services, which leads to higher production levels (Rittenberg & Tregarthen, 2009). In order to satisfy the increasing demand, the restaurant managers must focus on increasing the production capacity. This objective can be reached by purchasing a grill and a French fry machine.

It is important that the managers develop a strategy for the short run, while taking into consideration strategies for the long run. It is probably required to hire some employees to work on these machines. In order to make a proper decision, managers should establish the costs associated with each of these alternatives. These costs should be compared with the profits that each alternative can determine. If too much labor is hired without addition to capital, this could lead to reduced fixed factors of production capital. Therefore, it is important to determine the costs of this strategy on medium term and on long-term in order to decide how the restaurant's production and profits can be improved.

2. The marginal decision rule is an important analysis used in determining the mix of production factors. The article on maquiladoras reflects the labor intensive method of production. The low economic development in the region and the reduced number of investors have determined maquiladoras producers to focus on reaching the marginal profits that can be compared to their marginal costs by focusing on the workforce rather than on the capital.

The maquiladoras industry is also very important for the U.S. economy. This is because the profitability of this business has determined several companies in the U.S. invest in maquiladoras production in order to expand their activity. In addition to this, most of the components used in maquiladoras production are purchased from the U.S. The intensified demand of such products in border regions leads to involving the workforce in these regions in the maquiladoras production process (Vargas, 2001). This is intended to determine the development of industrialization in these areas. The industrialization process is expected to create more jobs, to help companies in the field develop their activity, and to determine the increased use of technological developments that can lead to higher quality products and services.

The development of the industry in these regions also determines an increase of the services sector. This sector can be addressed by companies in the U.S. that have the financial possibilities of investing their capital in local producers or in developing their subsidiaries in these regions. In addition to this, the increased employment in border regions can significantly influence the consumption behavior of customers in these regions. In other words, the market could develop, determining an increased interest from U.S. companies in addressing this market.

3. The companies that produce generic drugs have significantly increased their profits. The development of this industry can be attributed to several factors. The most important factor that determined the development of the generic drugs industry is represented by the progress made in regulating competition in the drugs industry, and by the Patent Term Restoration Act.

These developments helped increase competition on the drugs market. As a consequence, the generic drugs industry can be considered a perfectly competitive market. The success of generic drugs companies is influenced by several factors. The economic and political conditions have reduced the market entry barriers, allowing an increased number of companies to address this industry (Investopedia, 2012).

The reduced prices of generic drugs in comparison with the prices of branded drugs are another important factor that determined the success of generic drugs companies. This determined the increased demand for such products. The fact that generic drugs are more affordable for most customers, their preference towards this type of drugs is reflected by the increased sales of companies in this business.

Another factor that determined the success of generic drugs companies relies on the fact that companies in this industry sell similar or identical products at similar prices. This makes it easy for customers to access and to buy these products. In addition to this, the similarity between generic drugs reduces the risk of supply shortages. This helps companies improve the efficiency of their supply chain management and to reduce a series of costs like those determined by transportation.

4. There are several differences between the strategies used by companies in order to reach their short-term objectives and those used in order to reach their long-term objectives. These differences are mostly reflected by companies' approach on costs and profits. The most important objectives of short-term strategies refer to maximizing profits. It has been observed that many companies prefer to focus on short-term profits rather than on long-term profits. This is mostly because short-term profits have smaller risks.

But the costs associated with short-term profits can be higher. Therefore, these companies prefer to develop short-term strategies, even if the difference between costs and total revenues is smaller in this case, leading to smaller profits. There are also situations in which short-term costs are smaller. This depends on each type of industry.

The situation is different on long-term. Companies' long-term objectives usually required increased levels of investments from them. This leads to increased costs. In addition to this, companies must take into consideration the fact that production costs are likely o increase on long-term. Some of these costs are difficult to evaluate, because their evolution is influenced by several factors.

There are also situations in which companies prefer to operate on short-term even with reduced profits. This is because they prefer to not generate profits on short-term, in order to generate higher profits on long-term. In other words, they prefer to invest in short-term strategies that can lead to reaching these companies' objectives on long-term. This strategy allows them to reach higher profits on long-term with smaller costs determined by short-term strategies. This strategy is intended to reduce costs, while maximizing profits. Therefore, it is important that companies establish the best profits that can be reached with reduced levels of investments.

Reference list:

1. Rittenberg, L. & Tregarthen, T. (2009). Principles of Microeconomics. Retrieved March 9, 2012 from http://catalog.flatworldknowledge.com/bookhub/reader/21?cid=&e=#web-28308.

2. Vargas, L. (2001). Maquiladoras: Impact on Texas Border Cities. Federal Reserve Bank of Dallas. Retrieved March 9, 2012 from http://www.dallasfed.org/research/border/tbe_vargas.html.

3. Perfect Competition (2012). Investopedia. Retrieved March 9, 2012 from http://www.investopedia.com/terms/p/perfectcompetition.asp#axzz1oc1Tci2H.

Micro Economics MOD 3 SLP

1. The type of market in which my fast food restaurant franchise operates seems to be a combination of perfect and monopolistic competition. If we take into consideration the general fast food industry, it seems to be a monopolistic competition. This is because although there are numerous companies on this market. The prices are established by large players in this industry, like McDonald's and KFC.

They have important market share, which allows them to modify their prices in accordance with their needs. This situation determines smaller companies, like my franchise, to modify their prices in accordance with those of the leaders in this industry. If they increase their prices, so will the franchise. But this is likely to lead to a reduced number of customers because of increased prices. In case they reduce their prices, the franchise will have to use the same strategy, which is likely to lead to reduced profits, because production costs are higher.

The characteristics of the perfectly competitive market are represented by numerous buyers, numerous sellers, and similar products. This leads to similar prices of these products (Business Dictionary, 2012). The numerous customers on this market find it easy to switch to different brands because of the reduced differences between these products and their prices.

2. In this case, the company faces strong competition on local level. The fast food franchise addresses customers with medium incomes in business areas of the city. The increased number of customers from schools in the area and from numerous office buildings ensures high profits levels for the company. However, the business opportunities of this region have been observed by other competitors also.

The most important competitors of the company are represented by medium sized fast food restaurants. The company prefers not to compete with large players, like McDonald's, because it does not have the financial power that allows the company to make the investments required by such competition. The strategy used by the company in order to create competitive advantage is based on differentiation. This refers to product differentiation. The company is trying to address foods from different countries, in order to attract such customers. It is likely that some of these competitors could develop similar strategies. In this case, the company should focus on reducing some of its prices. In addition to this, it is recommended that the company improve its business relationships with suppliers in order to benefit from smaller prices.