Macroeconomic Theory Applied to Dairy Farms

MACROECONOMICS: SUPPLY, DEMAND, PRICING, AND ELASTICITY OF DEMAND · AN ARTICLE ANALYSIS

Using Macroeconomics to Explain Entry, Exit, and Farm Size in the Dairy Industry in the United States

Foltz (2004) applied macroeconomic theory and models to explain farm exits and changes in herd-size among Connecticut dairy farms. Foltz (2004) found that a relatively stable, inelastic demand caused many farmers to exit the industry when excess demand depressed prices. The demand for dairy products remained relatively stable regardless of price; however, excess supply led many farmers to reduce prices in efforts to move their products. Thinning the number of suppliers brought supply in line with stable demand, allowing prices to rise to profitable levels.

Demand, in economics, is defined as the quantity of some product · either a good or a service · that is either needed or desired by one or more consumers · an individual person, a single firm, or a group of individuals or firms. Individual demand is the quantity of a product required by a single entity, while market demand is the sum total of the requirements of all consumers for a product. Overall, demand is defined as a schedule of the total quantities of a good or service that purchasers will buy at different prices at a given time. The demand for a product is described in terms of a demand curve that reflects the number of units of a product that will be purchased at various prices.

Supply, in economics, is defined as the total quantity of a product that sellers are prepared to offer to consumers at different prices over a given period. Supply is described within the context of a supply curve, which is similar in concept to a demand curve. Where demand curves slope downward and to the right, supply curves slope upward and to the right. Demand curves slope downward and to the right as the price on the Y Axis decreases and the quantity demanded on the X Axis increases, …

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