“Due to lower grain prices, consumers can expect retail prices of choice beef to begin dropping slightly this spring with pork becoming cheaper after midsummer,” the Agriculture Department predicted. “This reflects increasing supply,” the
department said. Does the statement use the term “supply” correctly? What effects might this announcement have on consumer demand?
Please provide the best answer for the statement.
The announcement does use the term “supply” correctly because the drop in price predicted is a result of lower resource (grain) prices. This means that producers of beef and pork will lower prices for each quantity on the existing supply schedule assuming “all other things remain equal.”
Consumer demand at present might decrease as consumers wait to make big purchases of beef and pork in the future when prices are predicted to drop. By spring, if beef prices drop, there should be an increase in the quantity of beef demanded and probably a decrease in the demand for pork, which is a substitute for beef. By midsummer, if pork prices drop, there will be an increase in the quantity of pork demanded, and depending on what is then happening with beef prices, a decline in the demand for beef. If beef prices had continued to fall, it is hard to say whether there would be much of a change in demand due to the price of the substitute pork falling. More likely, there would be only a movement along the curve for beef if the price continued to fall.
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