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Dec. 7 -- Markets Over Space

Dec. 7 -- Markets Over Space - MarketsOverSpace...

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    Markets Over Space (12/7/10) AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Markets over space … recognizes that production and  consumption in today’s U.S. food marketing system usually do not  occur in the same place This Week -- Chapters 9, 10, 11: Schrimper Thursday:  Return Exams, Last In-Class Assignment, Review for Final
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    Overview Production occurs in various markets due to the region’s  comparative advantage … but consumption occurs  worldwide according to taste and preferences and other  demand variables. Think about the origin of your breakfast this morning? Orange juice (Florida or California) Eggs (KY) Bacon (NC) Milk (WI) Coffee (Brazil) Fruits (Mexico, Chile, Argentina, Guatemala) Bread (wheat from Midwest ) AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Will there be a price  difference across  markets?
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    Price Differences Across Markets – (even with  homogenous goods and lack of market power  among buyers and sellers) P A S A D A Q B P B S B D B Q A   Market (A) Market (B) Why do central Kentucky farmers get less for their corn than farmers in selling their grain  to merchants along the Ohio River vs those in the Midwest? Why do Kentuckians have to pay more for fruits and vegetables in the early spring than  consumers in Florida and California? http://www.a
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    Overview Prices for identical products vary across markets  due to: Differences in consumer preferences across markets Degree of competition across markets Transportation costs AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Recall that transportation costs are a significant component of the marketing bill
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    What determines if a product will  move across markets?  Goods will move across markets  assuming the difference in prices in the  two markets is large enough to cover the  transportation costs. P A  – P >  TC    or P A  >  TC + P Where:   P = Price in Market A P B   = Price in Market B TC = Cost of Transporting the Good from Market B        to Market A AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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    Producer Price Surfaces –  Shrimper-- Figure 9-1 AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles A Distance Distance $/unit How would a decrease in transportation costs  affect this graph?
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