Question

Read the following article.

U.S. Pork Prices Hit Multi-Year Low

MINTEC, 10 Sept 2018

Pork prices in the U.S. have fallen sharply since June, with August prices 40% lower month-over-month, which shows that pork prices are falling at a more significant rate than the historical average.

Current prices are at a multi-year low why are prices falling faster than expected?

First, pork production is currently higher than last year, with low feed costs stimulating production. Additionally, the introduction of three new packing plants in Minnesota, Iowa and Michigan in late 2017 meant herds grew to meet the new packing capacity.

Along with increasing pork volumes in the U.S. market, rising supplies of beef and poultry mean that there are vaster meat supplies to compete for consumer spending with, eventually weighing down on pork prices.

But perhaps most significant, retaliatory tariffs from China on U.S. pork are driving down prices. The export market is a substantial destination for U.S. pork. In particular, China is a top consumer of U.S. pork, this retaliatory policy has hampered U.S. export growth further.

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Some factors could affect the demand for and supply of pork in the U.S.

Draw THREE separate demand-and-supply diagrams for each of the factors mentioned in the above article, and show their respective impacts on the market price and quantity of pork in the U.S. State clearly which factors or events are associated with the changes in demand or supply in each of your three diagrams. Briefly explain your answer.

*****Microeconomics******Please clearly answer the question with detailed steps*******I just started to learn microeconomics***please assist me, thank you

Answer 1

Even if the current prices are low and the pork prices are falling at a more significant rate than the historical average, then the reason could be the supply of pork due to some reason has exceeded it's demand, thus it's price is low. Moreover, due to a tariff restriction from China on the U.S pork, the supply of pork in the U.S market has increased as the demand for pork in China has decreased due to a tariff restriction. So, the prices of pork has decreased than the expected price. Other reasons could be the increase on the supply of pork due to the introduction of new firms in the U.S. Another reason could be the supply of other meats in the U.S market such as beef and poultry. With these meats in the market, people might prefer these meats than pork. So, with the decrease in the demand of pork the prices of pork will decrease eventually.

Situation 1 :With the demand remaining the constant, the supply increasing, due to low feed costs stimulating production. Moreover, with the introduction of new packing plants in Minnesota, Iowa and Michigan the production of pork has increased. With the high supply of pork production and low demand of pork, the prices of pork will decrease.

Situation 2 : With the rising supplies of beef and poultry in the U.S market, the competitiveness of the prices of pork has resulted in the cut down of pork prices. Thus pork prices have lowered down. Moreover, with the availability of other meats in the market, people might less prefer pork, so with less demand, eventually the prices of pork has decreased.

Situation 3: China being a top consumer of U.S pork, with the tariff imposed on pork, the prices of the U.S pork in the markets of China must have increased, thus the consumption of U.S pork must have decreased in China. Eventually, the demand for U.S porks will decrease, thus the supply of pork in the U.S market will increase than the expected demand. Thus the prices of pork in the U.S market will fall.

The graph for all the three situations are drawn above indicating the demand supply for each case.

In the diagram above, for situation 1, S(0) is the initial supply which eventually increases to S(1). D is the demand. Initial price is P(0) which then decreases to P(1).

For situation 2, the initial demand is D(0), which then decreases to D(1). The supply remains to be 'S'. The initial price remains to be P(0) which eventually becomes P(1).

For situation 3, the initial supply is S(0) which eventually becomes S(1). The demand is D. The initial price is P(0) which eventually becomes P(1).