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Supply and Demand

Supply and Demand

The classical capitalist economic system is based on demand and supply mechanism.  The classical economists believed that government intervention, in economic affairs, lead to economic disequilibrium, and because of which, both producers and consumers suffer. Therefore, the classical economic model did not have fiscal instrument and government could only influence economy, to certain extent, through monetary instrument.

Even the Keynesian economists, who believe that capitalist economy is inherently unstable and flawed, slyly agree that government intervention should be avoided and fiscal instrument should only be used for developing a region or digging economy out of economic crisis, as it happened in 1930s, when capitalist economies used fiscal instrument to end deflationary trend and to increase consumption.

In the modern times, where fiscal instrument is used frequently, demand and supply still plays the most vital role in stabilizing economy. Economists believe supply and demand reflects true price and consumption pattern in economy.

Beef Industry

American agriculture sector is highly segmented and beef industry is its major component, which is lucrative and because of ever-increasing demand has high attraction, as industry. As per stats, the industry is constituted by 100,000 businesses, which are small, medium and large, in size. The stats also reveal that in the beef industry, of US, there are around 800,000 ranchers and cattle producers.

In the recent years the demand for the beef has increased, dramatically, which has also increased its prices. It is a known fact that with the increase in demand, of a normal good, the price of a product or service increases.

This can be explained with the help of graph, which depicts demand and supply curves.

http://www.personal.psu.edu/~dxl31/econ2/Spring_2006/demand_increase.png

It can be seen that the increase in price has shifted the demand curve to the right, which indicates the increase in demand, for beef. The supply has remained the same, which is positively sloped, but demand, which is negatively sloped, has shifted to the right.

The increase in demand has increased price and the quantity demanded. The change in price is depicted by the increase from P1 to P2, whereas the increase in quantity is depicted by Q1 to Q2.

Current Scenario

The article reveals that in the recent years, because of the increase in the price of beef, the industry has become very attractive for many investors. For the last seven years, beef prices are perpetually rising, which has provoked investment. The increase in investment, in cattle farming, will expand supply.

The increase, in the supply, will decrease the price, of beef and in the year 2016, there might be a little reduction in price. However, the article also suggests that as per few forecasts the demand will start to grow, which will offset the decrease in the price. This is because the increase in demand will be less than the increase in supply.

Effect on related industries and Substitutes

As mentioned earlier, the increase, in prices, affects not only that particular industry but also related industries. It is known fact that chicken and pork are substitutes for beef, even mutton. Therefore, the increase in price of beef has increased demand for substitutes, chicken and pork. However, this is has not seriously affected beef price and the still the price is very high and demand is going to increase in the months to come. 

The switching from beef to chicken or pork will benefit these industries and as the demand will increase the price. However, with the passage of time the prices, of chicken, pork and beef will reflect true demand and through demand and supply, it will reach equilibrium.

Conclusion

The demand and supply mechanism is a true mechanism, which naturally and smoothly bring market in equilibrium. The intervention, of government or its institution, can create artificial increase or decrease in demand and supply, which could yield various economic and market challenges. Therefore, supply and demand should be allowed to act, so that economic system and market can work more appropriately.

The beef industry of US is swelling and in the coming years there will be an evident increase in cattle farms, as the price and demand for beef is not going to reduce, anytime soon. Therefore, investors will be bold in investing in such lucrative industry, which offers high returns. The increase in investment will also increase employment and eventually when supply will increase or expand more than demand, the price of beef, will continue to diminish. However, contemporarily, it seems quite unlikely that demand for beef will reduce, as love for steaks and hamburger continues.

References

Linly Lin. (2015, November 28). Retrieved November 2, 2015, from Fattest-Ever U.S. Cattle Herd Signals End to Record Beef Prices: http://www.bloomberg.com/news/articles/2015-11-27/fattest-ever-u-s-cattle-herd-signals-end-to-record-beef-price

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