Why Dairy Demand has Become More Elastic

In recent history, economists have viewed the market for dairy as relatively inelastic, in that goods such as milk, butter, and cheeses have varied very little with the change in price, and that they were seen more as necessities. Recent data has now shown the opposite effect to be true, in that higher prices have shown to have a direct effect on the consumption of dairy products, ultimately causing the demand for these products to decrease. Dorland, an economist who holds an MBA in both business and finance stated that historically a good amount of the dairy product went to the government, which had kept the prices stable in the market, causing milk and other dairy products to be held within a relatively tight price range. Today the government does not hold as much power over the dairy market, in addition to the fact that the there are now many more beverage alternatives with more reasonable prices.

Consumers have shown to be more price sensitive in terms of fluid milk, but less so with butter and cheese, in that consumers tend to always have a high demand for these particular products despite the price. There has also shown to be an emerging health concern in terms of margarine and butter substitutes, causing consumers to switch back to butter ultimately increasing the demand. In terms of the commercial restaurant sectors, such as McDonald’s, as the price of dairy continues to rise the demand of products such as cheeseburgers and others that involve dairy goods tends to decrease. This article ultimately shows that with the changing elasticity of even a small specific section of foods, the demand in the larger market as a whole that utilizes these goods, such as dairy, ultimately changes, and in some cases drastically. Dairy is increasingly becoming a more attainable good, and the decreasing prices makes it more available to a wider range of consumers.http://www.agweb.com/article/why-dairy-demand-has-become-more-elastic-naa-catherine-merlo/

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