In February 2022, Abbott recalled powdered baby formula manufactured at their Sturgis, Michigan plant due to potential bacterial contamination (see here). Affected brands were Similac (a standard infant formula), as well as the hypoallergenic formulas Alimentum and EleCare.

1. How does this recall affect the market for baby formula? Please include a supply and demand graph and illustrate the effect of this recall.

2. Similar to toilet paper during the first weeks of the Covid-19 pandemic, consumers reacted to bare shelves by stocking up (see this video for an example). According to market researchers, demand for baby formula had increased by 13% in comparison to before the Abbott recall (as reported herehttps://www.npr.org/2022/05/19/1099748064/baby-infant-formula-shortages ). Explain how this behavior affects the market for baby formula and use a supply and demand graph to illustrate your answer.

3. According to the supply and demand model, how will the market for baby formula adjust to these external shocks?

4. Read this short article (https://www.gpb.org/education/econ-express/allocation-strategies) summarizing different allocation strategies. Which strategy is represented by the supply and demand model? Which allocation strategy (or strategies) did we observe in the market for formula this spring/summer?

5. As we have learned in this module, elasticity of demand measures the responsiveness of quantity demanded to price changes. Consider the demand for baby formula in general, demand for standard Similac formula and the demand for hypoallergenic Alimentum or EleCare formula. Which do you expect to be the most inelastic and most elastic (compared to the others)? Please also explain your answer.