Respond Think about a product that you have purchased recently (e.g. soda, diape

Question

Respond    Think about a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/pedicure, video game, etc.). Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product (T-I-P-E-N and P-R-E-S-T). What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product. Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically?

Explanation / Answer

Supply and demand:

Prices for milk can differ by country and even from region to region within a single country. The prices often depend on national or regional supply and demand. International supply and demand also influences regional prices.

Demand

Demand for milk is driven by demand for dairy produce. So what does this depend on?

The volume of dairy we consume worldwide is determined, first and foremost, by the number of people who consume dairy produce and by dairy consumption per person. In every country, milk consumption depends largely on the popularity of milk compared to other drinks such as water, soft drinks, coffee and tea, as well as on the popularity of dairy products such as cheese, compared with competing products of vegetable/fruit (such as jam) or animal (cold meats) origin. Apart from flavour and quality, price is also a differentiating factor.

In western countries, the price of milk has little impact on milk consumption. However, in countries with developing economies, price and consumption are strongly interrelated. This is because people in emerging economies spend a much higher proportion of their income on food.

Innovations also play a role. The sector is constantly developing new dairy or dairy-based products. Some are a great hit among consumers. One notable example is the use of dairy as a basis for meat substitutes.

Demand for milk also depends on the use of milk constituents as an ingredient in other foodstuffs and even medicines. Milk constituents often compete with ingredients of other origin for preference in such applications.

Supply

Due to seasonal influences, the supply of milk fluctuates strongly over the course of a year. The milk season in western Europe falls in the spring, when cows are put out to pasture and start calving. This milk season occurs about six months later in Australia and New Zealand.

A key determinant in the supply of milk is obviously the number of cows that are milked. When dairy farmers are satisfied with the milk price versus production costs, they are more inclined to expand their milk herd. To do so, they obviously need enough cows, sufficient stable space and land. In many countries, environmental laws place restrictions on the number of cows that can be reared per hectare.

Supply is not just about litres (or kilograms) of milk, but also about the percentage of milk constituents, such as fat, protein and lactose (milk sugar). Milk that is high in protein produces more cheese per litre than low-protein milk. Dutch milk contains an average of 4.4 per cent fat and 3.5 per cent protein.

The amount of milk that a cow gives and the percentages of fat, protein and lactose it contains depends on the cow

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