Explain two factors that could increase the price of milk (AQA AS-Level Economics Paper 1 June 2018) - 10 marks
Markets are a place where buyers and sellers meet to exchange goods and services (such as milk). Equilibrium is the price and quantity where demand meets supply.
One factor that could lead to an increase in the price of milk is an increase in demand, which could be caused by related goods. Demand is the quantity of goods and services that consumers are willing and able to buy at each given price. For example, if the price of teabags went down, the demand for teabags would increase and therefore the demand for milk would also increase. This is because teabags and milk are complementary goods. Compliments are a pair of goods which have a positive XED. Consumers use milk and teabags together to make tea. If teabags are more affordable then consumers are more willing and able to buy milk at any given price, causing a right shift in the demand curve for milk.
The diagram shows the right shift in the demand for milk causing the price of milk to increase.
Another factor that could cause an increase in the price of milk is a left shift in the supply curve for milk. Supply is the quantity of goods and services that firms are willing and able to sell at each price. This could be caused by an decrease in productivity. Productivity can be measured as output per worker. If workers are slower to package milk, then supply would shift to the left. This is because there would be an decrease in the quantity of milk that firms are willing and able to produce at each given price.