Please could someone help me with these Economic questions! Watch

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Report Thread starter 3 years ago
I was wondering if anybody could help me with these economic revision questions. There are 5 questions which are based on a specific case study seen below:

Section A
Milk Prices and Supermarkets
The past few years have seen a desperate fight for market share among Britain’s supermarkets, sharpened by the relentless rise of Aldi and Lidl, two successful German-owned discounters. Tesco, the biggest, Asda, Morrisons and others have reported some of their largest-ever losses. They might have been hoping for a period of relative calm to restructure their businesses and repair their balance-sheets. No such luck.

Thanks to a string of changes affecting the world dairy industry, most significantly the end of European Union quotas on milk production, falling demand in China and Russian sanctions against EU dairy producers, there is a glut of milk. That has led to falling prices everywhere. Britain’s dairy farmers, says Phil Bicknell, head of food and farming at the National Farmers’ Union, have experienced brief price drops before, but nothing on this scale. Except for a brief respite in February, prices have been falling every month for well over a year. And it could get worse.

Milk producers have been venting their anger and frustration on the supermarkets, where most of the stuff is sold. Angry farmers have been herding cattle down supermarket aisles and activists have been buying up shelves of milk only to pour it down the drain, in protest against low prices. They claim that, unless the supermarkets pay more, many dairy farmers will go out of business.

Yet for retailers, milk has become a prime weapon in the battle for profits, or even survival. As Julian Bailey, head of marketing at Morrisons, puts it, “if we are not competitive on milk prices, then some of our customers, particularly the more budget-conscious ones, will just shop elsewhere.” Indeed, this price war has resulted in supermarkets cutting spending on liquid milk relentlessly, especially this year. Since 2007, according to Kantar Worldpanel, a research outfit, the amount of milk sold in Britain has risen by 11% to a projected 5.5 billion litres this year, but the value of sales has fallen from £3.5 billion ($5.5 billion) in 2009 to an estimated £3.2 billion this year, the lowest figure since 2007.

Confronted by bovine protesters followed by television cameras wandering down their aisles, the supermarkets have been forced to respond, and prices are edging up. On August 17th Aldi, Lidl and Asda started to pay a minimum price of 28p per litre, well above the average price paid directly to a farmer for milk of 23.64p (the so-called “farmgate” price). Even so, that is still below the cost of production, which farmers claim is about 30p per litre. Tesco, Sainsbury’s and a few others already pay a bit more than the cost of production.

Morrisons, the fourth-largest supermarket, has pledged 26p a litre later this month. It is also introducing a new brand, “Milk for Farmers”, which will cost 10p more per litre,
money that it promises to pass straight to farmers. This gives shoppers the opportunity to put their money where their mouths are if they want to support British farmers. Morrisons’ own research suggests that, at least in theory, 41% of its customers are happy to do this.

Yet the dairy industry could do more itself. There has been much rationalisation in the sector in recent years, but the farmgate price of British milk is, at the moment, the fifth most expensive among the 15 older EU members. This is partly due to short-term currency movements, but it also suggests that Britain’s dairy farmers could become more efficient.

(Article adapted from The Economist - 22/8/2015)

Section A Questions
1. According to the article what has caused the price of milk to fall in recent times? (6 marks)

2. Using demand and supply diagrams explain how the price of milk has been affected by the factors mentioned in question (1) above. (10 marks)

3. The article suggests that farmers are blaming the supermarkets for the fall in milk prices. Giving your reasons, to what extent do you agree with this argument? Does the evidence suggest that the demand for milk is relatively elastic or inelastic? (10 marks)

4. Giving reasons for your answer explain what type of market structure the dairy industry is operating in. In your answer you should consider the role of the supermarkets as buyers as well as sellers of the product. (12 marks)

5. If the UK government decided to intervene in the industry what measures could it employ to help UK dairy farmers and what effects would such measures have on the industry? Diagrams are expected for this question. (12 marks)
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Report 3 years ago
I have these same questions, I am struggling with question 5 have you completed them now as I am unsure of 1 more point and the diagrams to use.

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