Markets are constantly changing and the seemingly unpredictable changes can be quite overwhelming. While very few markets are perfectly competitive, where there are many buyers and sellers, all products sold are identical, and there are no barriers to firms entering the market, many markets can be broken down into the model of demand and supply to analyze markets and predict changes. These economic models are simplified versions of reality used to analyze real-world economic situations. In the article, “Dairy Farmers Get No Relief in Latest Global Auction”, the Wall Street Journal discusses how a surplus of dairy products is causing a dramatic decrease in price. Dairy prices peaked in October of 2015 and in less than 6 months prices dropped by 20%. This dramatic drop in a relatively short period of …show more content…
In this case, the number of firms in the market increased which caused a surplus of unsold goods and a decrease in price. As well, the demand curve shifts left because a variable other than price changed. In this case, foreign policy has prevented exports to go to large markets. As seen, the shift in supply and demand curve has caused a decrease in price of dairy products. The quantity of dairy products will depend on how much the curve shifts, which is not information currently provided. The shifts cause the market equilibrium to change from the yellow dot to the orange dot. When the market is not in equilibrium, it will move toward equilibrium and stay at equilibrium when it is reached. It is important to remember that when a shift in the supply curve causes a change in equilibrium price, the change in price does not cause a further shift in demand or supply. This economic model relies on assumption and is a simplification of reality. The market demand and supply seen in the demand and supply curves have been simplified to a linear