Question

Consider the multiple steps (markets) involved in producing and distributing the loaves of bread that you find in your local supermarket. Explain to the Russian official how the free market accomplishes this rather impressive task.

You can use multiple posts and discuss and illustrate each step of the supply chain. Or you may focus on the consumer-retailer-baker part of the supply chain. Either way be clear and specific about how the changes in demand lead to changes in supply at each stage.

Remember to refer to the appropriate graph(s) in the Supply and Demand Guide as you examine the various markets involved. If you wish to draw an appropriate graph and attach it to your post you may, but that is not required. (If you do, be sure to explain the graph in your post - but don’t attach your post, just the graph).

Answer 1

Generally, in the present twenty first century, bread is sold on three major levels. The first level is the traditional neighborhood bakery, which is still in existence in large urban cities and places in the twenty-first century. The second is the grocery store, or supermarket, and third is what might be called the bakery café, along with the specialty foods store. People buy bread based on their convenience.

In the traditional neighborhood bakery category, the local bakers build their client base from the immediate neighborhood, especially in larger urban centers, where population density and foot traffic allow the independent baker to make a living by directly connecting to their customer. In this category, people buy bread from local neighborhood bakery for its freshness, and immediate consumption within a day.

The second level is the Grocery stores level where bread products have been developed and baked with a longer shelf life in mind than breads baked in a neighborhood bakery. Frequently made with dough conditioners, emulsifiers, and mold inhibitors, they are meant to withstand plastic bags and to last for several days in the store. People who are busy and need bread over the week or for long duration will opt for this category.

In general the types of breads found in the grocery store are a result of the bread industrial revolution that took place at the beginning of the twentieth century. Consumer desire for white bread with a soft crust along with mechanized developments in the milling and baking industry made it possible not only to mass produce a homogeneous product but also to distribute it over a wide geographic area.

The third category is the Bakery cafe or speciality foods category. They typically provide a higher-quality product than that found in the grocery store. People who opt for a high grade bread would look under speciality foods category.

Steps involved in producing and distributing bread that is found in the supermarkets -

The first step is the bread production. Bread is produced by the baker by incorporating different steps (like - Scaling, mixing and kneading, Fermentation, punching, rounding, benching, make-up, proofing, baking and cooling). Once the bread is made, it is packed and sent to the distribution centers.

Once the bread reaches the distribution centers, it is distributed to wholesellers and retailers such as hypermarts and supermarkets. Wholesellers who buy breads from the bakers distribute them to different grocery stores, or chain of stores such that it reaches the customer in a day or two.

In the free market, as the market demands for more, more is produced. There will be a little or almost no intervention from the government. The invisible hand is an economic concept where market demand act as signals for producers, i.e., because consumers want and are willing to pay for bread, a baker has the incentive to produce bread. In the other words, since consumers are willing to pay for a certain quantity of bread, producers are willing to acquire raw materials for the bread in the free will and sell them in the free trade market. It means, if there is a change in the demand at the consumers side, like for example, if the demand decreases, then the supply of the breads will also reduce. Similarly, if the demand increases, the supply of the bread in the market will also increase. Since bread is a perishable product, production depends on the demand in the market.