The End of The BLT?

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http://www.npa-uk.org.uk/Pages/Press_Releases.html

Due to the rising cost of feed, Britain’s National Pig Association has said that a shortage of pork and bacon is inevitable. They want to try increase the price of pork products so it is easier for farms to produce, therefore avoiding shortage and a steep increase in price. There is speculation of a 10% increase of prices, as the amount of pigs slaughtered has dropped down 2%.

Britain’s National Pig Association has started a campaign called “Save Our Bacon”; they want to encourage shoppers to buy pork produce that comes from the United Kingdom. They hope that the increase in demand for domestic produce will increase the support for pork and bacon producing farms by supermarkets.

Opinion:

Bacon is not a necessity, nor is pork. However, traditional English food encompasses pork in all aspects. In theory the failing of the pork industry, may lead people to healthier alternatives. But do people really want to switch from the British Breakfast or the BLT to the healthy alternative? If the demand for bacon is maintained, then increasing prices will be a given with the current state of feed commodities such as corn and soya beans. The alternative is that an increase in pork prices, will lead to a drop of demand and the movement to substitutes such a chicken or beef.

Over the past three years it has become more problematic to grow pigs not only due to rising costs of feed, but the change of regulation with the intention of greater animal welfare. The pig industry is dwindling and production costs in the U.K. are higher than the majority of the European Union except Italy.

 

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Command Economy Vs. Free Market (Round 1)

Winter Is Coming, and The Soviet Cupboard Is Bare

http://www.businessweek.com/stories/1991-11-03/winter-is-coming-and-the-soviet-cupboard-is-bare

International Business

WINTER IS COMING, AND THE SOVIET CUPBOARD IS BARE

Tensions are running high at Moscow’s sprawling Gastronom food store near Byelorussia Railway Station. With coupons ready, two dozen people are lined up at the counter to get sugar rations they were supposed to have had three months ago. Management claims there’s no sugar–but it turns out that 20 sacks of sugar have been hidden in the back. For hours, the angry crowd refuses to leave, forcing police to clear the store when closing time comes at 8 p.m.

As winter approaches, such scenes are becoming common. The question being asked in capitals from Brussels to Washington is: How bad will it get in the former Soviet Union? Mass starvation is unlikely. But a combination of poor harvests and breakdowns in food distribution will mean pockets of serious shortages throughout the country. The repercussions are being felt on world commodity markets. Plans are afoot for the U. S. to extend $1 billion in emergency food credits and aid, prompting American grain prices to shoot up.

Across the Soviet Union, cities loom as the most vulnerable spots. Perm, an industrial town in the Urals, already witnessed major protests when sugar supplies dried up. In Moscow, frustrated tipplers ransacked a liquor outlet that had no vodka. In Alma Ata and St. Petersburg, bread is running short. Most at risk are retirees, who struggle along on pensions of 140 rubles a month and can’t afford the plentiful but expensive food in private markets.

The biggest immediate threat is a poor grain harvest, which many expect to come in at 170 million metric tons–down 22% from last year. Of that amount, about 70 million metric tons were to have been sold to state distribution agencies run by Moscow. But in the aftermath of August’s failed coup, central authority has all but evaporated, allowing state and collective farms to sell what they please. By Oct. 1, they had sold only 35.4 million metric tons to the government.

The rest is being hoarded by farmers in hopes of selling it privately later at higher prices. Since spring, for example, grain prices have jumped from 900 rubles to 2,000 rubles a ton. And with the ruble losing value by the day, farmers are using grain to barter for consumer goods, cement, or other items they need.

Yet state and collective farms do not have adequate storage facilities and may face big grain losses, as Vladimir A. Tikhonov, a Soviet agricultural expert, told an Oct. 18 conference at the Geonomics Institute of Vermont’s Middlebury College. The resulting shortages could touch off food riots by spring, he says.

RUMBLING BELLIES. In Russia, the most populous republic, food supplies are tight. Meat purchases for the first nine months of the year were down 20%, and dairy sales sank 15%. In more than 50 Russian cities, meat, butter, and vodka are being rationed.

Finding additional supplies will be difficult. Now that they’ve declared their independence, such food-producing republics as Moldavia, the Baltic states, the Ukraine, and Kazakhstan are reluctant to ship food to Russia, since they want to feed their own people first. Russian cities in the heavily industrial Urals region, for example, used to get livestock from the Baltic states. But shipments have fallen off dramatically. The republics are supposed to adhere to their commitments to sell food or pay penalties in hard currency. But, says Tikhonov, “a period has come when no agreements can be relied upon.”

Western countries, fearful of the chaos that food shortages could spawn, are gearing up with emergency plans. The U. S., Japan, the European Community, and Saudi Arabia have earmarked $10 billion in aid and credits primarily for food. But last year, when the situation was less than dire, the Soviets cried wolf: Much of the emergency food aid sent by the West ended up wasted or absorbed by the black market. The question now is figuring out how to send help when it’s really needed–and before it’s too late. Rose Brady in Moscow and Peter Galuszka in Middlebury, Vt.

Questions:

How is the basic economic problem being handled by the use of coupons? Why might this be less successful than money?

The coupons are in a way a different form of currency for the people and businesses, since the coupon is being exchanged directly for a given product. Through the use of coupons there is the elimination of opportunity cost, as a coupon only entitles you to one given product. The reason this may be less successful than money is because the value of the product may increase as there is a shortage of supply, but a coupon entitles the person to the same amount of the product as before. This encourages those with the product to hoard it and sell it on the black market for immediate monetary gains and a greater profit then would have been received if the coupons were taken.

Suggest reasons why there may be a shortage of sugar?

  • The main reason there is a shortage of sugar is because the producers are hoarding the sugar. There are two markets in existence the black market and the coupon market. The producers rather sell in the black market to increase profit rather than sell in the coupon market, therefore the creation of shortage.
  • Another possible reason is that product is being used to barter for other product, this direct trade skips the use of coupons or the black market therefore not establishing a supply.
  • The final reason for a drop in supply would be the independence of former Soviet Union states not exporting their product

Use demand and supply diagram to explain why there is a shortage of some foodstuff.

Use a demand and supply diagram to demonstrate the surge in the price of food.

Does the article demonstrate the failing of the command or free market based solutions to the basic economic problem?

To an extent the article highlights what occurs when there is an economic transition from one system to another. The main issue that the article highlights is the undermining of the command economy system with the use of the black market. In essence the black market is a free market without regulation but with similar aspects such as equilibrium and price signals. The article mentions an immediate threat with the poor grain harvest, and the resulting surge in prices; this is not entirely an issue that only a command economy would face but also a free market economy. An example of this occurring in free markets can be noticed often when there is scarcity of a resource, what a command economy attempts to do by rationing is to reduce the issue of scarcity.

What can be noted about the transitioning economy is the behaviour of the sellers of commodities. Since there is no longer the regulation forcing them to give their produce to the government they are free to do with it as they like. So immediately they go for the short-term positive personal gain, rather than thinking about the greater community. This is why the black market prospers at this time, because the profit margin for selling in the black market is much greater than the margin in the transitioning economy; this relates back to the issue of the coupons.

Supply & Demand Review

1. Why does the demand curve slope down from left to right?

The reason the normal demand curve slopes down from left to right, is due to the inversely proportional relationship that price & demand have. The slope exists as it follows the “Law of Demand”, this is because as the price of a product or commodity decreases then the demand increases. There are only two exceptions for the normal demand curve, and they are Giffen Goods & Veblen Goods.

2. Why does the supply curve slope up from right to left?

There is no law that determines that the supply curve should slope up from right to left. The regular supply curve does show a positive relationship between quantity of supply and price. However in accordance to theory as the quantity of supply increases so does the demand. This works because in theory a manufacturer would want to make more of their product if it was to be sold at a higher price, as there can be an increase in the profit margin.

3. Explain, using a diagram, what happens to the demand for ice cream as we move from summer to winter?

In regards to supply, the supply curve will shift to the left as prices will remain the same but the quantity of supply will be reduced. In regards to demand the curve will shift to the left as the changed in demand is due to the seasons changing and ice cream becoming less favourable during the winter. In the diagram below the shift of the equilibrium can be noticed.

 

4. People have a rise in incomes explain with a diagram what will happen to the demand for restaurant meals?

Due to a rise of income, people have a greater effective demand to go out for restaurant meals. The supply will stay the same, as the restaurants won’t necessarily react to a rise of incomes. The demand however will increase, and the price will be similar or higher than before, as people are now able to afford eating in restaurants and the price increase is a reaction to the newly generated demand.

 

 

5. There is an increase in the price of cinema tickets. Using a diagram explain what will happen.

Due to the prices of cinema tickets increasing, there will be excess supply. This is because there is not a given factor to change the supply or demand but the price has been changed. The market will naturally want to go back to the original equilibrium, if there is not another factor introduced to justify the change in price.

 

Going Hungry?

 

The United States is currently the biggest exporter of corn, and the world corn trade prices tend to be determined by the U.S. markets supply & demand relationship. Due to the U.S. influence on corn prices, there is a price dependency on weather in the U.S. Corn Belt.

The price of corn has dramatically risen since May 2012. On August 10, 2012 it reached a peak of 843.75 cents per bushel this price is above the peak corn had reached in the 2007-2008 food crisis where it peaked at 765.00 cents per bushel. The increase of price during May and June can be attributed to wet weather around the United States; this led to the delay of corn planting. But the price began to soar towards the end of June and into July, as the most serious drought in the past five years hit the Corn Belt. The drought led to wilted fields and radically reduced the supply of corn; the USDA (United States Department of Agriculture) estimated a corn harvest that is 13% lower than last years. However demand throughout the summer stayed relatively unchanged as the price has still not dropped below 750 cents per bushel. The great constant demand for corn is due to the need for it to be used in livestock feed, and recently livestock producers are planning to work under capacity to reduce the consumption of corn until the prices drop back down. This has led to speculation that demand destruction can occur, due to the continued high prices and livestock producers planning to reduce consumption. The reason that there is only speculation of demand destruction is due to the demand for corn in the production of ethanol and corn syrup (contains fructose from corn). The use of corn syrup is guaranteed in various fruit drinks, soft drinks, and candy; this is due to high prices of cane sugar. Due to the various factors mentioned corn is able to maintain such a high price during a time of vastly reduced supply, due to the lack of downward shift in demand.

Demand Destruction:

A permanent downward shift of the demand curve, most commonly occurs when a price of a commodity has for a long period of time been constrained of supply or high in price.

 

http://www.ft.com/cms/s/0/e04706c0-fca4-11e1-9dd2-00144feabdc0.html#axzz26daUBA5q