The invention of a machine that increases milk production is discovered. If farmers were to decry the effect of this new technology on the price of milk and lobby government to set the price of milk at the price before the invention, what would be the result?
Take a shot, what do you think. Hint: Draw initial supply and demand graphs. Then, shift the supply curve because of the invention and put a price ceiling. What happens?
excess milk supply
excess demand
If farmers were successful in lobbying the government to set the price of milk at the price before the invention of the machine, the result would likely depend on several factors such as market demand, government policies, and the overall impact on the industry. However, here is a potential scenario that could unfold:
1. Increased milk supply: The machine that increases milk production would lead to a significant increase in milk supply. This increased supply could potentially lower the cost of production for farmers.
2. Lower market prices: With more milk being produced and available in the market, the basic economic principle of supply and demand would likely come into play. The higher supply could lead to lower market prices for milk due to increased competition among farmers to sell their products.
3. Pressure on farmers: Lower market prices could put financial pressure on farmers, especially those who are unable to adapt quickly to the changes in the industry. Some farmers may struggle to cover their costs and could face reduced profitability.
4. Government intervention: If farmers lobby the government effectively, they may be able to convince policymakers to set the price of milk at the pre-invention level. This would mean that the government would regulate the market to maintain higher milk prices, effectively subsidizing farmers' incomes.
5. Consequences for consumers: While setting the price of milk higher may benefit farmers in the short term, it could have consequences for consumers. Higher milk prices could lead to increased costs of dairy products for consumers, potentially reducing their purchasing power and affecting their overall budget.
6. Potential market distortions: Government intervention in setting the price of milk could result in market distortions. It may discourage innovation and investment in the dairy industry, as there would be less incentive for farmers to adopt new technologies and improve efficiency. This could impact the long-term sustainability and competitiveness of the industry.
It's important to note that the actual result would depend on various factors and cannot be predicted with certainty. Economic forces and government policies can have complex and interrelated effects, making it challenging to determine the outcome with absolute certainty.