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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/

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Appeal to Out of State Students

Many “undistinguished state institutions”have recently experienced a significant decline in demand causing a notable decline in enrollment. In order to raise the demand, some colleges are considering cutting the out-of-state surcharges entirely. However, because of the revenue raised from admitting out-of state-students and charging them additionally, the colleges must be able to enroll at least 50% more out of staters to maintain the revenue that the college generated beforehand. The rise in out-of-state students is anticipated with an increase in costs as the marginal cost will be above zero to accommodate the spike in enrollees. However, though the marginal cost is kept low, it may be too much to run a successful university. The article goes to explain that international and out-of-state students are more inclined and have been proven to be drawn to flagship state universities with higher surcharges as the students consider the value of these more recognized schools to the less expensive schools. The supply of the “undistinguished” schools appeals to draw more people in at a lower cost, but the demand does not change. The marginal benefit of attending a more recognized state school overrides the monetary cost and benefit of the cheaper schools and therefore, the demand for the former type of universities remains high and fairly inelastic.

 

http://www.forbes.com/sites/ccap/2016/11/28/price-competition-comes-to-higher-education/#4b75fc9825f7

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Organic food labeling and pricing – Monopolistic competition and elasticity

The article examines a new trend of food consumption in the U.S. As people become more conscious of their diets, a new market has been created with foods that are labeled organic according to the USDA’s standards. There are a couple of economic concepts seen in this growing market.

  1. Monopolistic competition: The first producer who utilized the desire for organic foods and put a label on organic foods to separate it from other foods in the market successfully started this new market They probably had monopoly power for a short amount of time at first. But now it has turned into monopolistic competition because since the cost of entry is low, more and more sellers come into the market. The foods sold by each producer are still slightly different from each other, giving the firms the monopolistic characteristic even though there are many firms in the market. Each firm faces a downward demand curve, but all firm’s demand curve are currently shifting to the left because many other firms are constantly entering the market of organic foods. This is a fairly new market and the demand curves and prices are still shifting, while nothing is settled yet, this seems to be the current general trend.
  2. Inelasticity of demand: The sellers are still selling at a price above marginal cost and they can cut down production and raise the prices because there is an inelastic demand for organic products. The author stated that people are willing to pay up to 100 percent more for organic produce. High prices and small quantity supplied can be seen easily in stores. The price of organic foods are often higher than normal foods but it is also valued more, and organic foods are more difficult to find whereas normal grocery are found easily in neighborhoods.

Article: http://www.investopedia.com/articles/investing/021215/economics-organic-labeling.asp

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The End Of Price Hikes for Pharmaceuticals?

Many drug companies hold monopolies over production of certain medications simply because of patents. However, this Business Insider article shines light on a type of monopoly no one thinks to talk about. Similar to the “You can’t take it with you” effect discussed in class, certain drug companies will excessively raise their prices because they are producing a life saving drug for which there is no substitute. The demand is presumably inelastic, but they also don’t have very large markets in general. Therefore, these “orphan drugs” don’t make the companies which produce them any profit because the market is so small. Since profits aren’t being made, even when patents expire generic drug makers have no signal to enter into the market thus allowing the monopoly to remain. With no true market price these firms feel they can set whatever price they want, thus leading to 5000% increases of prices in some cases. However, they are still subject to demand and while patients who need these drugs will continue to purchase them, the pressure is increasing for these companies to increase their consideration of their consumers. As highlighted in the article, when firms less than ethical prices hikes were exposed, several announced plans to cut prices. Could the end of exorbitant prices for these “orphan drugs’ be headed our way? Is all it takes to increase a company’s ethics is expose their behind the scenes dirty work?

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“US new home sales unexpectedly rise in September”

The sales of homes in the US rose in September. The CNBC article claims that this signals an increase of demand for housing in the US. In our terms, this means that the demand curve for houses has shifted up and to the left. There are not enough houses though, because the supply curve is not as elastic as the demand curve. In effect, there are not quite enough houses being built to match the demand.

Article: http://www.cnbc.com/2016/10/26/new-home-sales-reported-for-september-2016.html

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Expected Inflation for Precious Metal Commodities

The U.S. News article discusses the importance of commodities in a market. Commodities are typically raw materials that are sold and that have no substitute, which makes its demand somewhat inelastic. Particularly mentioned in this article is the precious metal commodities. Interest rates are low for gold and silver due to the expectations of higher prices in the future. These expectations are an example of a demand curve shifter, due to the expected higher future price, the demand is high for these precious metals. Also, factoring into the demand of these precious metals is the lower opportunity cost that comes with low interest. When the opportunity cost for a commodity is low, the likelihood of it being purchased is higher and the consumer’s willingness to pay is higher, which leaves room for a greater consumer surplus. Gold is considered to  be a valuable investment due to the looming inflation that is on the horizon for similar precious metals. However, raw commodities such as these have more value for traders rather than for investors.

http://money.usnews.com/investing/articles/2016-08-19/how-to-hedge-against-inflation-with-commodities

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College Textbooks Prices have increased more than 1000 percent since 1900s

Going to College is expensive. Contributing to tuition fees, housing, travels is an enormous payment on textbooks. Public Interest Research Group found the average student spends as much as $1,200 each year on textbooks and supplies alone. College textbook prices are increasing way more than parents’ ability to pay for them. According to NBC’s review of Bureau of Labor Statistics (BLS) data, textbook prices have risen over three times the rate of inflation from January 1977 to June 2015, a 1,041 percent increase.

One of the reasons why publishers and bookstores keep raising prices is students are “captivate consumers”. As students have to buy books they are assigned, textbooks become necessities. Thus, with the change in the price of textbooks, the number of textbooks demanded varies very little. In other words, the price elasticity of textbooks is inelastic.

As a result, in order to avoid rocketing prices, students are renting books, buying cheaper digital versions instead of hardcovers or paperbacks, and taking advantage of free, “open source” textbooks. This shift in purchasing books changes the demand in other industries such as online banking and shipping. However, this still meant they have to spend hundreds of dollars on textbooks.textbookprice_d7bbb96677a81c69da37daa70391dc73.nbcnews-ux-600-700

Source: http://www.nbcnews.com/feature/freshman-year/college-textbook-prices-have-risen-812-percent-1978-n399926

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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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NAND chips prices up after Japan earthquake, tsunami, nuclear meltdown fears

According to Computer World, the price of NAND chips increased as a result of the natural disasters happened in Japan in March, 2011.

NAND flash memory chip is an electronic non-volatile computer storage device, which is erasable and reprogrammable electrically. It was invented by Fujio Masuoka – a Toshiba worker and commercialized by Intel Corporation. The six producers of this chip are Intel, Micron, SK Hynix, Samsung, SanDisk and Toshiba. It is manufactured in a factory or fabrication plant (fab). At the fab, NAND chip is etched onto wafers which are then sliced into individual die, tested and packaged. It is widely used in industrial robotics, electronics and other digital devices such as personal computers, cameras and mobile phones. Thus, consumer product manufacturers (e.g. Apple, Dell, Samsung) are the main buyers of NAND flash memory chip. Because its price is getting cheaper while its productivity is getting higher and the electrical industry is growing fast, the demand of NAND flash memory chip increases.

After Japan earthquake, tsunami and nuclear meltdown in 2011, memory chip price shot up due to fabrication plant shutdown, power outage and supply chain shortage aftermath. Because Japan accounts for 35.7% of the world NAND flash chip production, these natural disasters caused a huge decrease in the supply of the chip, which made the supply curve shift up, to the left. The equilibrium price went up because the supply of NAND chips decreases but the demand is still the same.

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Source: http://www.computerworld.com/article/2470864/smartphones/chip-prices-up-after-j apan-earthquake–tsunami–nuclear-meltdown-fears.html

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