Question

Some products in the US food system were once considered basic commodities, like “beef” and “pork” but now agricultural producers are differentiating these same products by production methods and other practices that create product attributes that are valued by some consumers. Draw two graphs of demand curves - one that shows “back in the old days” demand for beef and one that shows the current demand for “certified Angus beef” product items. And then briefly explain in words how the price elasticity of demand for these two beef markets might differ.

Answer 1

Answer:

• So from the details given above, we know that initially "beef" was considered as a basic commodity, thus people perceived it to be a necessity. In the case of necessary goods, people are usually price inelastic because they are less responsive to changes in price. For example, think of a food item that you love consuming, even if there is an increase or even decrease in price, your total quantity consumed of the product won't differ a lot, will it? It is a necessity for you and you will want it irrespective of its price (blue demand line).
• On the other hand, now that agricultural producers are differentiating the same products, that is changing the way they produce the commodity because consumers are more conscious about what they are eating and where and how it is processed. Thus it can be concluded that the products are slightly differentiated from each other and therefore there are alternatives available for the same beef. Now, with more substitutes, consumers are price elastic and are more responsive to changes in price (Red demand line).