Milk demand and prices in global markets

¶ … Price and Quantity of Milk When the Following Events Occur:

An advertising campaign highlights scientific studies that find drinking milk can help reduce weight gain.

Demand: the demand of milk will increase because it also serves another purpose i.e. weight reduction. The demand curve will move to the right to depict increase in quantity demanded. People are investing so much in weight reducing items like slim fast shakes, diet pills etc. If milk is able to offer the desired weight reduction, even those who were not using milk previously will now do so because it will serve two important purposes i.e. calcium requirement and weight reduction.

Supply: with increase in quantity demanded, supply will increase too. Supply curve will likewise show an upward shift

There is a mad cow disease epidemic.

Demand: demand or quantity demanded will decrease because mad cow disease can directly affect quality of milk. Demand of milk is highly reactive to quality and if it appears that milk can cause disease, it will lower demand for milk.

Supply: With lower demand, supply will also decrease. With lower increase, there is no need for higher supply.

c. The price of milk decreases.

Demand: Demand will increase even though milk is resistant to price changes but with price reduction, quantity demanded will increase. Those who were preciously buying milk for certain purposes only will now be purchasing more for making things that they could otherwise not afford like homemade desserts etc.

Supply: with lower prices and more demand, supply will have to be increased to improve profits and meet demand.

d. The government decides to implement a price ceiling on milk.

Demand: Demand will remain unchanged. With a price ceiling, we know that milk prices will not go beyond a certain point that will have little or no impact on demand.

Supply: Supply will remain unchanged too.

COOKIES AND MILK

1. Price elasticity of demand is dependent on price of the item, luxury/necessity item and availability of substitutes

2. Milk is particularly inelastic because it has no close substitutes and it is a necessity item and it is complementary to many items including tea, coffee and cookies

3. When price of milk increase, revenues increase too because people will now demand more quantity and will also use it for luxury items like desserts which they were otherwise avoiding,