Quiz 2 - Economics 121 C - Prof Becker

Spring 1997

Trading of agricultural commodities is multibillion dollar industry. The markets for various commodities (e. g., spring wheat, pork bellies, corn, milk) have many small sellers and buyers. Within each commodity market, there is a homogeneous product. So, it seems that the supply and demand model might be appropriate for gaining some insights into the likely effects of various agricultural events and policies.

Consider the commodity market for milk. For each of the policies listed, explain

  1. what change(s) it would cause in the demand and supply of milk,
  2. whether overall milk consumption would rise or fall, and
  3. whether the price of commodity milk would rise or fall.

Finally, for each policy, draw a graph on the back that supports your answer.

Event 1. Corn and alfalfa (cattle feed) prices rise due to bad weather.

Event 2. Consumers abandon the "low-fat diet." (hint: milk is fattening)

Policy 3. The federal government allows the use of a growth hormone that increases the amount of milk a cow will produce.


Effect on Demand


Effect on Supply


Effect on Usage


Effect on Price

Disclaimer