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| Words: 1286 | Submitted: 01-Oct-2011
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DescriptionEU beef bans
The EU ban on exports of cattle that has been hormone injected is taking a toll on U.S beef producers. Besides the $500 million in annual lost revenues it is also affecting corn producers as well. This memo will explain the economic results that lifting the ban will have on many different sectors in the economy.
Anytime there is a trade restriction are lifted or imposed there will be effects on the domestic countries price and quantity sold. The United States and the beef industry are not an exception to this rule. The lifting the EU ban will cause a chain reaction of changes for domestic producers and consumers both immediately (short run) and over time (long run). When a trade barrier is initially lifted the short run effects are positive for domestic cattle producers. If you refer to Fig 1 in the adjoined graphs there is an illustration of this. Before the trade restriction is lifted the economy is in equilibrium at point P1 and Q1. When this restriction is lifted the foreign demand for U.S produced cattle will shift the entire demand curve to the right moving from D1 to D2. This will set a new equilibrium point at P2 and Q2. This is due to the economic theory that states that if a change unrelated to price occurs then the demand curve will shift. In this case the new market of consumers will increase demand and shift the entire demand curve to the right. From a producer’s stand point this is quite favorable. The increase in demand will allow producers to not only receive a higher price for their cattle but will also see and increase in the quantity of cattle that is being demanded. However, as time progresses and we move into the “long run” in Fig 1 there are more changes. The long run changes are shown by the shifting of the entire supply curve downward. This is because the higher prices will entice current producers to supply more cattle to capitalize on the increase in revenue opportunity. Along with this it may draw new producers to enter the market and raise supply levels further. As a result of the supply curve shifting from S1 to S2 it will drop the price from P1 to P2, which is close to the equilibrium price we started with at P1 in the short run. As far as quantity is concerned it will increase from Q1 to Q2 and thus bring overall quantity supplied to satisfy the new markets quantity demanded. Since cattle is an agriculture commodity there will be a natural lag for producers to be able to supply more cattle. This lag of transitioning from short ...
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