Why Dairy Demand Has Become More Elastic

Historically, the demand for dairy has been relatively inelastic. This is because in the past, the government was a huge customer for products such as milk, butter, and cheese. The government consumption of the product has gone down significantly. Cheese has stayed inelastic, but butter and milk are becoming more elastic as substitutes get more popular. Restaurants and fast-food places have helped drive the fluctuation by serving less dairy intensive products, like pizza or cheeseburgers, when prices get too high. Along with this and the price going up in stores, the demand decreases and a new equilibrium is reached.

Even though an equilibrium is eventually reached, the rise of elasticity in dairy products will most likely increase substitutes for a cheaper alternative. The dairy business could lose more money than planned because of the more stable prices of the substitutes.

 

http://www.agweb.com/article/why-dairy-demand-has-become-more-elastic-naa-catherine-merlo/

2 Comments »

  1. sarmiena Said,

    December 8, 2016 @ 8:53 pm

    This article is very interesting and is a good example of how the demand of a product can go from being inelastic or elastic. However, the article was published in 2015 and now that we’re in 2016, we now know that the demand continues to be high, yet the supply has decreased. For example, a recent article from the Wall Street Journal has stated that the price of milk has increased because of the low production and China’s demand of milk. Today, a new equilibrium has not been reached because of instability between the demand and supply of milk.

    http://www.wsj.com/articles/global-dairy-prices-rise-as-herds-culled-1471417490

  2. ramireza Said,

    December 9, 2016 @ 1:23 am

    I find this article very interesting because it reminds me of an article I used for one of the writing assignment problem sets that talked about milk prices.
    Link to the article: http://www.npr.org/sections/thesalt/2016/08/05/488708017/why-do-milk-prices-spike-and-crash-because-its-like-oil

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