Question

Using Economic Concepts: In 2004, the price of U.S. butter imports increased by more than 30 percent compared to the previous year. In 2003, Canada and New Zealand together supplied more than 80 percent of the butter imported into the United States. In 2004, their combined market share decreased to about 67 percent.

What happened in the market to cause this change?

How did price serve as a signal and incentive to producers?

Answer 1

Lower price is due to higher supply of butter in the market.

• There is a higher amount of butter produced by the United States of America so there is lower demand of butter in United States of America which decreased the butter demand from 80 percent to 67 percent.
• There is a high production of butter in the market.
• The higher production of butter increased the supply of butter which lowers the price of butter.
• This price serve as a signal and incentive to producer that there is a higher supply of butter in the market so we can conclude that lower price is due to higher supply of butter.

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