What happens when the demand of pork meat increase

Yee stated in The Star Newspaper, dated on January 11, 2011 that an increased demand for pork products has prompted a 20% increase in pork meat prices for the coming festive season compared to last year.  The Johor (South) Butcher Association chairman, Foo Ow Chek said that pork prices had gone up by RM3, with a kilo priced at RM17. “There is no fixed or regulated price and the prices differ depending on the sellers and this had stirred a lot of dissatisfaction among consumers and traders alike,” he said. He also said that a high demand in a product naturally causes the price to increase.

      The increase in demand of pork meat will create a shortage. In this situation, some pig farmers realize that they can‘t provide enough pork meat for the consumers, hence they raise the price of pork meat. Some pig farmers try to slaughter more pigs so that they can increase their output. The rising price reduces the shortage because it decrease the quantity demanded and increase the quantity of supplied. When the price has increased to the limit which there is no more shortage, the forces will cause the price stop operating and the price remain at its equilibrium.

                                                                                                                                                                     

 





The figure above explains the demand of pork meat before the festival season. Initially, the demand for pork meat is the red demand curve .When Chinese New Year is around the corner, customers usually rushed to buy the meat in bigger quantities, this causes the demand for pork meat to increase and the demand curve will shift to the right (blue curve). Now, there is a shortage of pork meat. In order to eliminate the shortage, the price of pork meat increase to a new equilibrium price .Change in demand cause the equilibrium price and equilibrium quantity to increase. When the demand increases, there is a movement up along the supply curve; the quantity supplied increases but supply does not change. The supply curve also does not shift.

      When the price of pork meat increases, other things remaining the same, its opportunity cost increase. Hence, consumers will try to find other products to substitute pork meat and this cause the quantity demanded of the pork meat to decrease. For example, consumers will choose to buy chicken, lamb, beef or even frozen pork to substitute pork meat and this cause the demand of the substitutes increase. On the other hand, if the price of pork meat decreases, consumers will purchase less of the substitutes and purchase more pork.

      If Chinese New Year is around the corner, the expected future price of pork meat rises. Consumers will buy more of the pork now before its price is expected to rise, so the current demand for the pork meat increases. Similarly, if the expected future price of pork meat falls, the opportunity cost of buying pork meat today is high relative to what it is expected to be in the future. Hence, consumers will buy less of pork meat now before its price is expected to fall, so the current demand of pork meat decrease and increase in future.

      The pork farmers don’t know when the expected future price of pork meat will increase. Even if they know that the price will increase and no matter how high the price will increase in a short time (that causes the demand to rise), they cannot do anything to increase the supply of pork meat. Although all the technologically possible ways to adjust supply has been use but the pig farmer also cannot increase the supply of pork meat in a short time.  This is because pork meat is long-run supply which is elastic. It takes time for pigs to grow until mature and to be slaughter. For pork meat has a perfectly inelastic momentary supply because pork farmers need to wait for the pigs to grow and the quantity available for that day is fixed.

      Some pig farmer will increase the price so that they can gain maximum profit. Government should enforce a maximum price (price ceiling) to protect the people’s interest so that the suppliers will not simply increase the price. Price ceiling is the regulation of government that make it illegal to charge a price higher than a specified level. The price ceiling is very important because it able controls the price of pork meat on the market effectively. The effects of a price ceiling on a market depend crucially on whether the ceiling is imposed at a level that is above or below the equilibrium price. If a price ceiling is set above the equilibrium price has no effect because the price ceiling does not suppress the market force. The force of the law and the market forces are not in conflict. There is a powerful effect on market when the price ceiling is set under the equilibrium price. The force of the law and market forces are in conflict because the price ceiling attempts to prevent the price from regulating the quantities demanded and supplied.

      In short, I agree with the statement of Yee, as the demand increase the price will increase during the festive season. For instance Chinese New Year will cause the demand of pork increase and this cause a shortage on market. The high demand of pork meat increases the price. Some supplier take this opportunity to raise the price so that they can gain maximum profit in this specific period .In order to protect the benefit of the consumer, government should take some action to control the pork meat in market when the price increase became unreasonable. Setting a price ceiling is one of the effective ways to protect the benefit of consumer when the price of pork meat is going up.