Archive forSection 04

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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Meat Industry Monopoly

Although it seems like there are various sources for one to choose their meat from, the meat industry is one large monopoly. In America, “Four companies make 85 percent of America’s beef and 65 percent of its pork. Just three companies make almost half of all chicken.” Companies such as Tyson and Cargill Inc. are able to control the supply of meat by owning every mean of production. For example, Tyson owns the breeding company where birds are raised, the hatcheries where chicks are born, the feed mills that are used to fatten chicks up, the slaughterhouse where the birds are processed, and the trucking that helps deliver the meat. Since Tyson Food, is able to control the means of production they are also able to control the price.

Due to this monopoly, meat prices have been climbing. In 2008, the meat industry was experiencing a number of set backs which affected chicken consumption. In order to solve this issue, Tyson associates decided “They needed to cut back production to keep chicken supplies lower. That would soon help drive prices up.” Although this change hurt the company for the first few weeks, it eventually worked to their benefit. In a matter of weeks, the price of boneless chicken rose by 20 cents(and is still climbing) and Tyson Food was profitable again. By Tyson being able to create high barriers to entry by controlling the means to production and drive prices up, proves that Tyson Food is a monopoly.

http://www.slate.com/articles/life/food/2014/03/meat_racket_excerpt_how_tyson_keeps_chicken_prices_high.html

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Marijuana Cultivation and Negative Externalities

Marijuana is used as a psychoactive drug or medicine. “Marijuana (herbal cannabis),consists of the dried flowers and subtending leaves and stems of the female Cannabis plant.” Marijuana can be produced in a number of different ways but the most prevalent method is outdoor or indoor cultivation.  Most of outdoor cannabis cultivation in the United States occurs on public lands. This allows cultivators take advantage of remote areas to minimize the risk of forfeiture from the government. In retrospect, home-grown cultivators have knowledge in breeding and nurturing a variety of different strains of marijuana. Cultivators concentrate on creating various types of marijuana by controlling the growth process.“This is done by using heating lamps, fluorescent bulbs, ventilation and soil nutrients, hydroponics (growing without soil by using a liquid solution which contains nutrients and minerals) and salt-free sand.” All these factor require a large amount of electricity.

The large amount of electricity needed for the cultivation of marijuana results in a negative externality because it uses an excessive amount of electricity. Four indoor plants sucks as much as much electricity as 29 refrigerators. A scientist, Evan Mills, discovered that “legalized indoor marijuana-growing operations account for 1% of total electricity use in the US, at a cost of $6bn per year. Annually, such consumption produces 15m tons of greenhouse gas emissions (CO2), equal to that of three million average cars.” The excessive amount of energy used results in large amounts of CO2 emission which is a negative externality.

Once the social cost is taken into account, the quantity of the goods consumed decreases. In order to account for the negative externality, in this case CO2 emissions, the price for the good increases which leads to a lower quantity being consumed.

Why Marijuana is Not Green


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Are You Actually Getting A Good Deal or Getting Ripped Off?

Online shopping has always been the best option for people especially me. It limits waiting in lines, avoiding rude customers and customer service while everything is just a click away. However, CBS, conducted a test that illustrated price discrimination online! Online shopping is not on our side as we once thought. Price Discrimination is when there are different prices listed for the same product, but the prices change depending on the situation. CBS’s research discovered based on someone’s computer, online search history, and zip code online retailers use this information to figure prices discrimination. Northeastern University conducted a study that demonstrated how nine out of sixteen online retailers and travel websites use this method to increase their profits.

One example of Price Discrimination is Home Depot. A man was offered free home delivery for a tree he paid $399, but CBS producers in Boston and Minneapolis found the same exact tree for $438. Home Depot then admit that in some cases based on a person’s region where they log on will determine their price.

One tip: always use multiple computers or phones to order something for the best price.

I-Team: You May Be Paying More Than Others When Shopping Online

 

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Is Our Health Worth the Burn ?

Since the Industrial Era, coal-fired power plants have increased the amount of coal they burn. This method has become very preferable, reliant, easy, and cheap. It is the most efficient method to get things done. However, burning coal causes negative externalities. It effects those who burn the coal, those who use products that require burning coal, and those who do not use anything that require burning coal. Coal is used for multiple things such as electricity and heat.  Even though there are other alternatives, they are most likely expensive and time consuming compared to burning coal.

These power plants are generating a lot of pollution. As the demand for electricity and heat increases, the supply of coal increases as well. Therefore, the level of pollutants emitted into the atmosphere increases health problems, erodes the quality of life, global warning, acid rain and smog. As a result, in order to decrease these bad effects there must be a tax on everyone whether or not they use products that come from burned coal to help regulate behavior. As a whole, the optimal quantity causes the price to increase and the quantity will decrease to account for social cost.

 

 

Coal power: Pollution, politics, and profits

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The negative externality behind the production of bricks

As there are more and more buildings constructed, the demand of bricks increases, which leads to the rise in production of bricks in many countries. Bricks are commonly produced near industrial areas where construction is highly developed. A brick can be composed of clay-bearing soil, sand, and lime, or concrete materials. The primary steps of manufacturing bricks are preparing ingredients needed for making bricks, molding those materials into the shape of bricks, drying bricks and finally burning them. Because bricks are made for building, construction companies are the main consumers.

However, the large scale of burning fuels such as coal, oil, gas to produce bricks is responsible for environmental pollution that has a direct influence on agricultural crops and plantations. In fact, brick kilns emit toxic fumes containing suspended particulate matters rich in carbon particles and high concentration of carbon monoxides and oxides of sulfur that are harmful to the health of plants. Also, fog and acid rain resulting from air pollution cause extensive damages to plant life. Because the manufacturing of bricks causes air pollution as a side effect that hampers the growth of crops, local farmers are adversely impacted. This loss of income in agriculture will be the negative externality of brickmaking operation.

Source: https://businessimpactenvironment.wordpress.com/2011/10/03/environmental-pollution-from-brick-making-operations-and-their-effect-on-workers/

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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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Positive Externalities of a Feed Supplement for Cows

Feed supplement greatly reduces dairy cow methane emissions

A new feed supplement has been proven to reduce cows’ methane emissions by 30 percent. Indeed, the supplement suppresses the creation of the methane gas in the cows’ rumen, and therefore, decreases energy losses, previously dissipated through methane expulsion. The saved energy from methane production results in a weight gain and higher productivity for the cows.

This new feed supplement produces a positive externality; In addition to increases in cows’ weight gains, milk production, and reproduction, the supplement helps reduce production of methane, a major green house gas, in the environment.

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Example of demand and supply movement: Wool Price

The price of wool faced a decline since 1985 because of technology innovation that leads to a decrease in demand. The technology innovations are cotton and synthetic fabrics. More buyers shifted their demand in buying wool to buying cotton and synthetic fabrics, which benefited them in a better deal. The shift in the demand curve cause movement along the supply curve, and thus resulted in a lower price.

In 2016, the price of wool increased after 30 years of decline. This increase of price resulted from a harsh winter and less feed, which leads to a decrease in supply shifting the supply curve to the left. The shift in the supply curve cause movement along the demand curve, and thus resulted in a higher wool price.

Link: http://www.stuff.co.nz/business/farming/sheep/76146110/Wool-prices-on-the-riseFullSizeRender

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China Removes Price Ceilings from Most Drugs

Since the year 2000, the Chinese government has implemented a price ceiling on most drugs after many complaints from Chinese consumers about prices being too high. Recently, however, the government has decided to eliminate the price ceiling to allow the price to be set by a market-driven pricing system. This is done to encourage more competition and better medicine as a whole for the pharmaceutical industry. The government will instead conduct drug inspections, focusing on where competition is lacking to regulate prices. They do not expect there to be any significant changes in drug prices, because most of the medicine impacted is sold through hospitals regulated by more local government.

Because the market is still being regulated so heavily, it is unlikely that removing the price ceiling on most medicine will impact the economy in any serious way. The point of the price ceiling is to keep the medicine costs from becoming too high, but since it has been in check for a decade and a half, there is some room to let the market fluctuate and create competition. The Chinese government is loosening its grip on different sectors of its market in a safe way. By having local government and continued lax regulation on medicine, the market price should even out to increase competition without becoming so expensive that the demand shoots down.

Source: http://www.natlawreview.com/article/china-removes-price-ceilings-most-drugs

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