Read the given excerpts from the article ‘Glut to blame for farm-gate milk price falls not big supermarkets’ by John Durie published in the Australian and answer all the below questions.
Glut to blame for farm-gate milk price falls, not big supermarkets:
VICTORIAN dairy giant Murray Goulbourn has cut farm-gate milk prices by 8.5 % to $4.50 per kilogram which leaves farmers at break-even levels due to the glut of milk on world markets.
Milk prices have fallen by 20 per cent over the last year so the 8.5 % cut from Murray Goulburn is relatively good but that is not much comfort for struggling farmers.
https://www.theaustralian.com.au/business/opinion/glut-to-blame-for-farmgate-milk-price-falls-not-big-supermarkets/story-e6frg9io-1226411003410
Please answer the given questions by using suitable diagrams. Be sure to describe your answers thoroughly.
Question 1: Suppose that milk operates in a perfectly competitive market, use a well labeled demand and supply model to describe how market equilibrium price of milk is being determined.
Question 2: By using the same model, describe and illustrate the impact of the glut of milk on the market. Clearly describe the equilibrating process.
Question 3: If you were the Minister for Agriculture in the Victorian Government and the Victorian Dairy Farmers Association asked you to support their members by imposing a legal minimum price, would you support or refuse their request. Use an economic model to describe why you reached your decision.
Question 4: With the help of suitable diagrams, what possible alternative programs could the government implement to raise the prices farmers receive in the market? How does your answer compare with question 3 above? Describe.