It is speculated that consumers may reduce their consumption of butter. They may switch to soybean-based margarine. Cheese makers are facing higher milk prices and are raising their own prices.
Questions Draw a supply and demand diagram of the market for milk.
Show the equilibrium price and quantity of milk. Illustrate the effect of El Nino on the equilibrium price and quantity. Now draw a diagram of the U.S. market for butter. Mark the equilibrium price and quantity. Show and explain the effect of the higher price of milk on the equilibrium price and quantity of butter.