Has Agriculture Reached Its Peak?

[smstonypoint]

A test! Oh dear.

1) I'll say C, stays the same. Buy less milk at higher cost is my reasoning.
2) I will contradict my above answer and say a 20% decline. :laughing:

How did I do?

Not so good. Grade = 0/100.

Steve

 

[dave1949]

Not so good. Grade = 0/100.

Steve

I was afraid of that.

I tried to read the linked study but when I encountered the Greek math symbols, I skipped to the conclusion.
Pretending I understood would be a self-delusion.
Alas, it was an inconclusive conclusion.

 

[smstonypoint]

I was afraid of that.

I tried to read the linked study but when I encountered the Greek math symbols, I skipped to the conclusion.
Pretending I understood would be a self-delusion.
Alas, it was an inconclusive conclusion.

Dave,

I cited that study as the source of my assumption about the magnitude of the own-price elasticity of the retail demand for milk.

Here's a hint should you want to retake the exam -- the own-price elasticity is defined as the %change in quantity demanded/%change in own price, all else constant.

Steve

 

[dave1949]

ECON 101 POP QUIZ

Suppose Congress fails to enact a new farm bill and a milk price support from 1949 legislation goes into effect, raising the retail price of fluid milk from $4.30/gallon to $6.40/gallon. Assume that the own-price elasticity of demand for fluid milk at the retail level is -0.32 (http://ageconsearch.umn.edu/bitstream/21679/1/sp99ma02.pdf)

1. If the retail price of milk increases, consumer expenditures on milk will (circle one)
(a) increase
(b) decrease
(c) stay the same

2. Compute the expected percentage change in retail fluid milk quantity sold if the retail price increases from $4.30/gallon to $6.40/gallon.

Steve

Dave,

I cited that study as the source of my assumption about the magnitude of the own-price elasticity of the retail demand for milk.

Here's a hint should you want to retake the exam -- the own-price elasticity is defined as the %change in quantity demanded/%change in own price, all else constant.

Steve

Ah, I wasn't paying attention, as usual. I will try again.

1) B decrease
2) Decreases by 8.16%

Close?

 

[smstonypoint]

Ah, I wasn't paying attention, as usual. I will try again.

1) B decrease
2) Decreases by 8.16%

Close?

Alas, no. Grade = 0/100 It's a sure thing that you can raise your grade to 50/100 should you take the exam one more time.

Steve

PS -- Thanks for humoring me. I sometimes miss the blackboard.

 

[dave1949]

1) A ???

2)
own-price elasticity is defined as the %change in quantity demanded/%change in own price, all else constant

-.32 = %change in quantity demanded / (2.10/4.30)

%change in quantity demanded = -.32 x .4884

%change in quantity demanded = -15.6%

 

[smstonypoint]

1) A ???

2)
own-price elasticity is defined as the %change in quantity demanded/%change in own price, all else constant

-.32 = %change in quantity demanded / (2.10/4.30)

%change in quantity demanded = -.32 x .4884

%change in quantity demanded = -15.6%

Very good! Grade = 100/100.

Because demand is inelastic -- the own-price elasticity is less than one in absolute value -- quantity demanded decreases less than proportionately with the own price increase and total expenditure increases. Now, if I only had access to a blackboard I could prove this graphically and mathematically.

Class dismissed. Have a Happy Holiday season.

Steve

 

[charlz]

I recently read that without the milk price supports being renewed, milk would be about $6.40/gal. here, or about $2.10 more than with the support. I bet that would slow down milk sales.

Who is paying $4.30 for a gallon of milk? Milk here is a lot less than that... I paid $1.98/gallon at Costco the other day..... If only my truck ran on milk

 

[smstonypoint]

Who is paying $4.30 for a gallon of milk? Milk here is a lot less than that... I paid $1.98/gallon at Costco the other day..... If only my truck ran on milk

I think I paid $3.44/gallon for the store brand at the supermarket on Saturday in Upstate SC. Today I saw Walgreens advertising milk for $2.99/gallon.

Steve

PS -- I should invite one of my former colleagues, a dairy marketing specialist, to join TBN. He could explain the intricacies of our milk marketing system, including marketing orders, component pricing, etc.. But nobody has that kind of time.

 

[dave1949]

Who is paying $4.30 for a gallon of milk? Milk here is a lot less than that... I paid $1.98/gallon at Costco the other day..... If only my truck ran on milk

It's something between $4.00 and $4.30 I'm pretty sure. The milk is from Oakhurst Dairy in S. Portland, ME. They support local dairy farms and 10% of profits go to good causes. They also did their best to stand up to Monsanto when they dared to put a label on their milk saying no growth hormones were used in the cows. For that action alone, I would pay $6. :laughing:

There are less expensive brands, but Maine has a minimum milk price set by the state. For the 1.5% I buy, the current minimum retail price per gallon is $3.74, $3.38 wholesale, $0.04 handler fee. Whole milk retail is $3.91. A "supermarket" can sell a gallon of 1.5% for $3.64.

It has something to do with Maine not being in the "Federal Order"; I don't know what that means really.
Prices: Maine Milk Commission: Boards & Commissions: Maine Department of Agriculture, Conservation and Forestry

"Currently there are two different groups of dairy farmers in Maine: Maine Market Producers (those who ship to dairies not subject to the Federal Order) and Boston Market Producers (those who ship to dairies subject to the Federal Order).

In September 2007, there were 3 farmers shipping to Houlton Farms Dairy and 10 other farmers, called producer-dealers, who process some or all of their milk, who, together, comprised the group known as Maine Market Producers. All other farmers were shipping to processing plants that come under the authority of the Federal Order and are in the group called Boston Market Producers.

Since the State of Maine is not part of the Federal Order, the Maine Milk Commission has full authority over processing plants that are exempt from the Federal Order, and has partial authority over Federal Order Plants that operate in Maine."




History and Background: Maine Milk Commission: Boards & Commissions: Maine Department of Agriculture, Conservation and Forestry
"A Maine Milk Control Law was enacted in 1935 by the 87th Legislature to eliminate a number of serious problems confronting the dairy industry and the consuming public. Glaring conditions necessitating this corrective action included price wars, farmers failing to receive payment for milk deliveries, dealer bankruptcies, consumers receiving low quality milk, etc.

Under the law a Maine Milk Commission was created to arbitrate differences, establish minimum prices in designated areas after proper hearings and exercise general supervision over the milk industry. Its basic function was, and still is, to see that there will be a plentiful supply of pure, wholesome milk available at all times, in all places, at reasonable prices."