Price of milk

The retail price of milk per gallon in the United States has been declining in recent years. The average price of milk per gallon fell dramatically from $3.82 in 2014 to $3.29 in 2016. (Retail price of milk, 2017). The drop in prices has been attributed to the commodity's diminishing demand, which has been observed across the country over the last five years. An increase in demand adds to an increase in product price, and vice versa (McConnell, Brue & Flynn, 2013). Most of the consumers in the U.S., for instance, have gone for substitute products coffee and tea beverages without milk, thus the reason behind the low demand.

Supply versus demand

As the supply of a given product increases so does its demand decreases. In the past few years, the supply of milk and milk products across the U.S. has increased significantly (Retail price of milk, 2017). The rise in the supply of the products is as a result of the availability of markets for the commodity. With the increasing supply and decreasing consumer demand for milk, retailers have been forced to cut down on the milk prices.

Price ceilings and price floors

Price ceilings refer to the maximum prices that are charged on commodities. If the government decides to set a price ceiling on milk, the quantity of the product demanded will not be equal to what is supplied, and this will result in a shortage. Black markets will then crop up, where individuals will sell the commodity at a price higher than the set price ceiling. Price floors, on the other hand, refer to minimum prices charged on commodities (Gottheil, 2013). In the event of the government’s implementation of a price floor, there will be an increase in the supply of milk leading to a further drop in its prices across the country.

References

Gottheil, F. (2013). Principles of microeconomics. Mason, Ohio: South-Western/Cengage Learning.

McConnell, C. R., Brue, S. L., & Flynn, S. M. (2013). Microeconomics: brief edition. New York: McGraw-Hill/Irwin.

Retail price of milk. (2017). U.S. average price of milk per gallon 1995-2016 | Statista. Statista. Retrieved 25 October 2017, from https://www.statista.com/statistics/236854/retail-price-of-milk-in-the-united-states/