Monday, January 2, 2017

The Market for Bison Meat and a basic Demand and Supply Model. Fun times graphing!

Here is an excellent article that allows us to practice a "simultaneous shift" in our Demand and Supply Curves in our basic Market Model.

That Bison Burger Just Got Pricier Thanks to Canada Ranchers
""Bison prices have been rallying as demand for the niche product is rising among U.S. consumers amid a favorable exchange rate and as more people seek out organic foods and healthy alternative proteins. The grass-fed meat has fewer calories, less cholesterol and fat than beef, and the animals are raised without hormones or antibiotics.""
A nice description of factors that affect the Demand for a good or service: a "change is consumer tastes/preferences" and "change in number of consumers" with a dab of foreign exchange effect thrown in (US dollar stronger than Canadian dollar).

Using a basic Market Model from a starting equilibrium we can see that the Demand for Bison Meat increases as more consumers choose to, well, consume bison meat.  At each and every price, the Quantity Demanded for Bison meat is greater than is was before.

The Demand Curve shifts RIGHT.

Here is the tricky part in trying to relate this to "real life".  If we stopped right now, it appears that at the new equilibrium "B" that the Quantity Supplied is now greater than it was before (Q1 rather than Qe--we move up and along the Supply Curve) In this case it is an "illusion" because we have a simultaneous change in Supply as described here:
""As demand gains, Canada’s ranchers are becoming more reluctant to send animals to slaughter, and instead are holding them back in favor of herd expansion. As a result, fewer bison are being exported for processing in the U.S., Canada’s biggest market, and domestic production probably fell 25 percent in 2016 from a year earlier to 10,500 animals, Kremeniuk said.""

The assumption is that at "every price the Quantity Supplied is less" than it was before, by about 25%.

The Market Supply Curve for Bison shifts to the LEFT indicating a DECREASE in Supply ("S1").

We have to be mindful that the Quantity Supplied, hence our Market quantity, will be LESS than it was before at "Qe".
The new "final" equilibrium Price  is "P2" at a Market quantity of "Q2" at Point "C"

Let's clean that up a bit:

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