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Read the given excerpts from the article ‘Glut to blame for farm-gate milk price falls not big supermarkets’ by John Durie published in the Australian and answer all the below problems.

Glut to blame for farm-gate milk price falls, not big supermarkets:

VICTORIAN dairy giant Murray Goulbourn has cut farm-gate milk prices by 8.5 % to \$4.50 per kilogram which leaves farmers at break-even levels due to the glut of milk on world markets.

Milk prices have fallen by 20 per cent over the last year so the 8.5 % cut from Murray Goulburn is relatively good but that is not much comfort for struggling farmers.

problem 1: Suppose that milk operates in a perfectly competitive market, use a well labeled demand and supply model to describe how market equilibrium price of milk is being determined.

problem 2: By using the same model, describe and illustrate the impact of the glut of milk on the market. Clearly describe the equilibrating process.

problem 3: If you were the Minister for Agriculture in the Victorian Government and the Victorian Dairy Farmers Association asked you to support their members by imposing a legal minimum price, would you support or refuse their request. Use an economic model to describe why you reached your decision.

problem 4: With the help of suitable diagrams, what possible alternative programs could the government implement to raise the prices farmers receive in the market? How does your answer compare with problem 3 above? Describe.

Microeconomics, Economics

• Category:- Microeconomics
• Reference No.:- M9900

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