Econ

Tuan Vu

Professor Bree Lang

ECON 200- 03

02/15/2012

Organic milk

“As Supply Dwindles, Organic Milk Gets Popular.” is an article posted on the New York Times website. It is about the situation that there is a shortage of organic milk in the United States. Shortage is an economic term describing the discrepancy between supply and demand of a good or a market. It happens when supply of one good is somehow smaller than the demand for that good. In this specific article, we are talking about organic milk. There are thousands of customers in the Southeast getting tired of not having organic milk. Not only from Florida to Tennessee, from Massachusetts to Virginia, and on the East Coast, big processors such as Publix, Horizon, Organic Valley, or Target have pronounced that they are just able to give retail customers around 70- 90 percent, and the price needs to be rise by 10 percent. The reason for the shortage is that cost of organic grain and hay to feed cows has gone up sharply while the money those farmers receive from selling the milk has not. Thus, in order to have some benefits, farmers have to decrease the numbers of cows or, feed their cows less, resulting in lower milk production.

The price of grain increases– Figure 1 | The organic milk market when the shortage happens – Figure 2 |

Price P* P1* Demand Quantity Q* Q1* | Price Supply’ P* B Supply P1* A Demand Quantity Q* Q1* |

As figure 1 demonstration, when the price of grain goes up, the quantity demand of grain goes down. It leads the movement along the demand curve.

As mentioned in figure 1, the price of grain goes up, the firm has to receive a higher price at given quantity. It leads the shifting of the supply curve to the left (supply...