Question

Dairies make low-fat milk from full-cream milk. In the process of making low-fat milk, the cream , which is made into ice cream . In the market for low-fat milk, the following events time. Explain the effect of each event on the supply of low-fat milk. 

( i ) With advice from health - care experts, dairy farmers decide to switch from producing 18 cream milk to growing vegetables. 

( ii ) A new technology lowers the cost of producing ice cream. (Short answer)

Answer 1

i. When the dairy farmers move from producing full-milk to growing vegetables, the source of low fat milk itself will not be produced anymore. This means that the supply of low-fat milk will decrease.

ii. Lower cost of production for ice-cream means that its profitability will increase. This means more players would want to join the ice-cream business. This will increase the demand for milk cream as that is used in making ice-cream. The increased demand means that supply for low-fat milk will increase because low-fat milk itself is a by-product of extracting cream from full cream milk.