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Chapter 3: Problem 11

Historically, the production of many perishable foods, such as dairy products, was highly seasonal. As the supply of those products fluctuated, prices tended to fluctuate tremendously - typically by 25 to 50 percent or more - over the course of the year. One effect of mechanical refrigeration, which was commercialized on a large scale in the last decade of the nineteenth century, was that suppliers could store perishable foods from one season to the next. Economists have estimated that as a result of refrigerated storage, wholesale prices rose by roughly 10 percent during peak supply periods, while they fell by almost the same amount during the off season. Use a demand and supply graph for each season to illustrate how refrigeration affected the market for perishable food.

Short Answer

Expert verified
Refrigeration affected the market for perishable foods by moderating the huge seasonal price swings. Before refrigeration, the supply curve shifted drastically right (peak season) and left (off-peak season) causing large price fluctuations. Post-refrigeration, these shifts were less pronounced leading to a moderated, approximately 10% variation in prices.

Step by step solution

01

Understand the Market with No Refrigeration

Imagine a scenario where refrigeration does not exist. During peak supply periods, the supply of perishable foods is high. As a result, the supply curve shifts right, meaning prices decrease due to the high availability of produce. Conversely, during off-peak periods, supply is low, so the supply curve shifts left, leading to high prices.
02

Introduction of Refrigeration

With refrigeration commercialized, suppliers can now store perishable foods from one season to the next. This reduces the seasonality effect. During peak season, despite high production levels, supplies do not flood the market but instead, some are stored, which prevents a significant price drop. During off-peak periods, stored supplies make up for the reduced production, therefore, preventing a sharp price hike.
03

Draw the supply and Demand Graphs

To illustrate this, we need to draw two sets of supply and demand graphs, one set for peak and the other for off-peak season. In each set, show a graph before and after the introduction of refrigeration. On the peak-season graph, you would draw an initial right shift in the supply curve (pre-refrigeration) indicating lowered prices. Post-refrigeration, draw a less drastic shift to reflect the moderated drop in prices. On the off-peak season graph, similarly, illustrate an initial left shift of the supply curve pre-refrigeration, corresponding to price hikes. Post-refrigeration, show the supply curve shifting less dramatically to the left, indicating a less sharp increase in prices.

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Most popular questions from this chapter

State whether each of the following events will result in a movement along the demand curve for McDonald's Quarter Pounder hamburgers or whether it will cause the curve to shift. If the demand curve shifts, indicate whether it will shift to the left or to the right and draw a graph to illustrate the shift. a. The price of Burger King's Whopper hamburger declines. b. McDonald's distributes coupons for \(\$ 1.00\) off the purchase of a Quarter Pounder. c. Because of a shortage of potatoes, the price of French fries increases. d. McDonald's switches to using fresh, never-frozen beef patties in its Quarter Pounders. e. The U.S. economy enters a period of rapid growth in incomes.

Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." a. Was the apple producer assuming that apples and bananas are substitutes or complements? Briefly explain. b. If a tariff on bananas acts as an increase in the cost of supplying bananas in the United States, use two demand and supply graphs to show the effects of the apple producer's proposal. One graph should show the effect on the banana market in the United States, and the other graph should show the effect on the apple market in the United States. Be sure to label the change in equilibrium price and quantity in each market and any shifts in the demand and supply curves.

Consider the following two uses of the word demand in news articles: a. An article in the Wall Street Journal noted that an "increase in the price of oil quickly reduces demand for oil." b. A different article in the Wall Street Journal noted, "Electric cars are poised to reduce U.S. gasoline demand by \(5 \%\) over the next two decades." Do you agree with how these two articles use the word demand? Briefly explain.

Briefly explain whether you agree with the following statement: "When there is a shortage of a good, consumers eventually give up trying to buy it, so the demand for the good declines, and the price falls until the market is finally in equilibrium."

If a market is in equilibrium, is it necessarily true that all buyers and sellers are satisfied with the market price? Brieflv explain.
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