Commodity Snapshot – Demand & Supply

Here is the Commodity Snapshot from last Saturday’s Globe and Mail:

High on the Hog
“Hog futures have been rising as many consumers choose pork over more expensive beef, which is selling near an eight-year high. Disease outbreaks in Asia have also lifted North American hog prices.”
90.4 cents – Price, in US dollars, per pound of lean pork on the Chicago Mercantile Exchange on Friday.
15 – Percentage increase in the price of beef over the past 12 months.
7 – Percentage increase in the price of pork over the past 12 months.
21.1 million – Number of hogs slaughtered in Canadian packing plants in 2010.
Here is your task:
1. Represent this scenario graphically.
2. Provide a written explanation of the shifts and changes in supply and/or demand.
3. Email me a picture of your graph and explanation and I’ll post it.
4. Feel free to comment on what your peers are thinking….


photo (4)Leanne


5 thoughts on “Commodity Snapshot – Demand & Supply

  1. Initially we look at the disease outbreak in Asia aspect of the question. Since the disease out breaks in Asian Hogs, the Asian market moves to the North American markets. This external factor causes the demand graph to shift to the right. The reason is because there is more demand, a new equilibrium between the supply and demand curve is created. This new equilibrium as at a higher price value. Therefore when disease outbreaks in the Asian market, demand in the North American market increases, and cases a new equilibrium. When the question talks about the percent changes this referring to the price of the new equilibrium as compared to the old equilibrium. As we seen in the graph, the new equilibrium would be 7% higher than where it was before (note the mathematical intervals on the graph are not to scale.

  2. Interesting topic … when I was studying economics in university we used to make a bad joke that it would be a good research topic to ask: is pork really the "other white meat?" (this played on an advertising campaign at the time that pork was the other white meat, i.e. not chicken). But in actual fact, the joke got at the issue you are describing, namely to what extent pork and beef are substitutes in consumption?In the context of the post, this raises two issues. First, we can probably accept that pork and beef are indeed substitutes: as the price of beef rises, this causes demand for pork to rise (the demand curve shifts out). But the extent to which the demand curve shifts characterizes the degree of "substitutability". If it shifts alot, this means that they are strong substitutes. Basically it comes down to how these products are used: if instead of having a steak I eat a pork chop instead. So the extent to which price increases are caused by shifts in demand (versus supply) is an interesting question.The second issue that arises is to consider the beef market. If the price of pork goes up, this should also cause the demand for beef to rise as well. So we could enter into a kind of feedback loop where increases in pork prices encourage increases in beef prices and so on.Anyways, just a couple of things to consider …

  3. After our discussion in class and reading what some of my peers have said it is evident that the correct graph would include the new demand curve to have shifted to the right. This would indicate that there is an increase in demand because more people are wanting to buy the cheaper pork opposed to beef. Opposing that would be a new supply curve that has shifted to the left. The decrease in supply is the result of the diseases outbreak of pork in Asia which has lifted pork prices in north America and caused a new higher equilibrium price on the graph.

  4. The demand has increased in this graph because people's preferences have changed (more people want to buy pork than beef because it is cheaper). Therefore, the demand shifts right and the price increases. The supply, however, decreased because of disease in Asia. The supply curve shifts left, and the price increases.

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