Question
Suggest alternative interpretations of the information provided assuming the demand curve slopes downward and the supply curve slopes upward: My firm produces baby formula. On
Suggest alternative interpretations of the information provided assuming the demand curve slopes downward and the supply curve slopes upward:
My firm produces baby formula. On 24 June 2022, the U.S. Supreme Court overturned the decision of the case Roe V. Wade. Birth rates in the country have been declining ever since the Recession of 2008-09, however, the healthcare consulting firm SG2 estimated that the decision to overturn Roe V. Wade will increase the number of births in the U.S. by 150,500 to 159,700 live births per year. In 2018, the CDC report card for breastfeeding reported that 53.1% of babies born were either exclusively being fed formula or some hybrid feeding schedule of formula and breastfeeding.
On 28 August 2022, Fox News reported that the Abbott plant in Michigan is going begin producing Similac baby formula this week. Abbott is the largest producer of baby formula in the U.S., and when the Michigan plant was shut down earlier in the year after product recalls due to bacterial infections in infants with 2 fatalities, this contributed to the nationwide baby formula shortage. Without the shortage, the average price of a 13 oz. tub of Similac at Walmart is $5.49, and at Target the same tub costs $8.29. However, due to the shortage, it has been reported that there third party markets and sales through platforms like eBay, where sellers are price gouging the infant formula and offering a case (8 tubs) at $800. This is a markup of 1352% from an average cost of $6.89. By Abbott beginning to reproduce Similac again, the current negative slope of the demand curve will begin to neutralize the disequilibrium as the shortage fills. This will also allow for the third market sales to decrease with increased supply in big-box and department stores.
If there was a substantial increase in the birth rate concurrently with another recall of baby formula due to concerns of health and safety of infants, it's likely that there would be another instance of price gouging. The CDC does not recommend that parents try diluting formula, switching to whole milk, or attempting to make homemade formula. It may result in many women relying on surplus breast milk or switching formula brands at the risk of allergy or digestive complications thereby leaving the market of baby formula completely and being removed from the customer base during the high demand. The government could impose a price ceiling on baby formula to ensure health and safety of the children, and to regulate the market. Because other factors other than price (increase # of babies born, factories' ability to produce, product recalls) that affect output change, a shift in the supply curve is more dominant.
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