Sunday, August 21, 2011

Cluck-o-nomics

If I were writing an exam for intro-to-intermediate microeconomics (or MBA microeconomics), this article from CNN Money would be a scenario on the final exam:
Total chicken production in the first half of 2011 rose 4% compared to the same period a year ago, while demand for chicken has cooled, according to the National Chicken Council.

Consequently, retail prices for chicken product have dipped.

The Department of Agriculture, keenly aware of these issues, announced Monday that it will make a special purchase of up to $40 million of chicken products, which the government will then donate to federal food assistance programs such as soup kitchens and its national Feeding America programs.
Even more interesting, this program seems to kick in whenever the price for chickens drops ... and prices have been low as of late:
The government made a similar move with a $30 million purchases of chicken products last year and a $42 million purchase of chicken products on 2008 with the intention of stabilizing retail prices.
If this is for your first economics class, the exam question would be a fairly difficult and open-ended one (though it could easily be narrowed down with more leading questions and some parts are easier than others):

What are the likely consequences of the USDA chicken-buying policy? Compared with no chicken-buying policy, how does this program affect private quantity demanded? Quantity supplied? Price? Will the government program stabilize prices as intended? Evaluate the efficiency consequences of this policy. Use a well-labeled graph and state any assumptions you need to make along the way.

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