Tag: price elasticity of demand

The combination of high global demand for milk and variable weather has led to a rapid rise in the price of milk. Cheese is made from milk (sorry to state the obvious!) and so cheese prices have risen to a new high in excess of £2000 per tonne and further price hikes are expected. One conclusion that could be drawn from this is that it is better to have a takeaway pizza now rather that in a month’s time, but what other effects is this price increase for milk likely to have?

Cheddar hits £2,000 a tonne as global milk demand soars Guardian (15/7/07)


1. Identify the key determinants of demand for cheese.
2. Using diagrams as appropriate, illustrate and explain the changes that have taken place in the market for cheese.
3. Assess the extent to which the price increase for milk can be passed on to consumers of associated products like yoghurt and cheese.

Passenger groups have reacted angrily to the raising of off-peak fares by South West Trains by around 20% on many journeys. The train company has increased unregulated fares significantly where there is little competition, but appears to have limited the increases on journeys where there is competition. Is this an abuse of their monopoly position?

Train firm accused of abusing monopoly Times Online (8/5/07)
Price hike angers train watchdog BBC News Online (8/5/07)

1. Discuss the extent to which South West Trains has a monopoly on its rail journeys.
2. Using diagrams as appropriate, show the reasons why South West Trains has chosen to increase off-peak prices by as much as 20%.
3. Discuss the likely value of the price elasticity of demand for off-peak rail journeys. To what extent will this have influenced South West Trains’ pricing decision?

Have you ever had a drink or packet of peanuts from a hotel minibar and then regretted being tempted when you saw the price on checkout? If things like minibars and internet access are so over-priced in hotels, then how can they get away with it? Why do people pay these amounts and what can economics tell us about this pricing behaviour?

Minibar economics MSN Slate (17/2/07)


1. Explain the reasoning behind hotel pricing strategies for rooms and minibars.
2. Discuss the impact of competition on hotel pricing strategies for rooms and extras like minibars and internet access.
3. Examine the reasons why more companies do not do “advertising campaigns boasting about their what-you-see-is-what-you-get pricing”.

January 2007 saw unseasonably cold weather in California and the big freeze that occurred may have destroyed up to 70% of the Californian orange crop. Prices as a result of oranges are likely to treble in US shops. The impact on prices elsewhere in the world may be less, but is still likely to be significant as California is an important area in global terms. Oddly the price of orange juice is unlikely to be affected as very few of the Californian oranges go for turning into juice. The majority of oranges for juice are grown in Florida.

Big freeze sours US orange crops BBC News Online (17/1/07)


1. Using supply and demand diagrams as appropriate, explain the impact of the freezing weather in California on the world price of oranges.
2. Using supply and demand diagrams as appropriate, compare and contrast (a) the change in the price of oranges and orange juice and (b) the change in the price of oranges in the USA and the rest of the world..
3. Examine the likely impact of the cold weather in California on prices of other foods.