Microeconomics Portfolio - Post Review

Microeconomics Portfolio - Post Review

News Story 1 # Fertiliser Aid Dropped After Milk Tests

URL: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10861292

Summary

The news story is about recent milk inspection tests, which have resulted in the lower usages of fertilizer and chemicals by the farmers and suppliers. The story claims that the fear of losing milk export market has urged named suppliers to decline the aid of dicyandiamide (DCD), which is primarily used to minimize greenhouse emissions and nitrogen loss (Johnston, 2013).

Economic Analysis and Relevant Micro-economic Concepts

According to recent statistics, 85% of the produced milk is exported to other countries (Bascand, 2012). Last year, seasonally adjusted exports of milk faced a decline in profits due to lower sales of butter, cheese and milk power. Analysis of the news sets an emphasis on the fundamental concept of market equilibrium, which is created by demand and supply (figure 1).

Figure 1: Fresh Milk Demand (Economics, n.d., p. 1)

Graph of Seasonally Adjusted Milk Supply

Figure 2: Seasonally adjusted Exports of Milk Products (Bascand, 2012, p. 3)

In the given scenario, New Zealand's dairy export reach to 151 countries might affect from changes in consumer perception (Johnston, 2013). For example, importer of New Zealand milk might be able to buy the offered product. However, fertilizer aid may negatively affect his willingness to buy a dairy product due to higher concerns regarding safety of the product. This may lead to reduced demand for New Zealand milk.

Diminishing returns and supply are most suitable micro-economic concept, which may reflect apprehension of milk suppliers to curt the fertilizer aid in order to sustain their dairy exports. Fall in the milk demand will produce lower profits for suppliers and milk producers. Consequently, supply of milk will be reduced in order to manage supplier's margins, which may help them to prevent diminishing returns (Johnston, 2013).

Implication for Key Stakeholders

Inspection ...