What will happen to the demand for margarine if the price of butter increases?

If the price of butter increases, then the demand for margarine will likely _____. A.)increase B.)decrease

If the price of butter increases, then the demand for margarine will likely: increase.

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Asked 4/7/2016 11:36:36 AM

Updated 6/2/2016 10:16:21 AM

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If the price of butter increases, then the demand for margarine will likely: increase.

Added 6/2/2016 10:16:21 AM

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explain what the effects of a price ceiling is on the quantity of a good.

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Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.

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why is there no excess supply or demand of goods at the equilibrium price.

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Updated 11/6/2020 1:10:48 AM

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There is no excess supply or demand of goods at the equilibrium price because the equilibrium price is the price at which quantity demanded equals quantity supplied.

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Jeff Greenberg | Universal Images Group | Getty Images

Cue the collective gasp of chefs, bakers and foodies: Food prices are up considerably — but none more so than for butter and margarine.

Prices for these ingredients and spreads jumped 32% in September versus a year ago, the most among all grocery categories, according to consumer price index data issued Thursday.

Specifically, margarine prices popped by 44% and butter rose nearly 27% — substantially more than the 13% annual increase for the overarching "food at home" category, according to the CPI, a key inflation measure.

And those prices may well remain elevated at least through the rest of the year, according to experts.

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So, what gives?

The sharp rise is partly attributable to the same factors nudging up prices across the grocery aisle, such as elevated costs for labor and distribution, according to economists.

But it's also due to global geopolitical events — like the war in Ukraine — as well as weather and other phenomena affecting the dairy industry and the market for vegetable oils, a key input for margarine.

"All the costs that go into producing a stick of butter, all those costs have risen," said Matt Herrick, a spokesman for the International Dairy Foods Association, a group representing dairy producers.

Margarine: It's all about the vegetable oil

Vegetable oil — including soybean, palm, sunflower and rapeseed (also known as canola) oils — is the most important ingredient in margarine by volume, according to Mac Marshall, vice president of market intelligence at the United Soybean Board.

Prices for those commodities tend to move together — meaning a supply disruption for one commodity affects vegetable oil as a group, Marshall said.

A farmer collects oil palm seeds in Indonesia on Aug. 19, 2022.

Aman Rochman/NurPhoto via Getty Images

Several recent factors have fueled tighter supplies of the commodities and therefore higher prices. By March this year, the price of all vegetable oils had spiked by 53% over its average in 2021 and by 153% over 2020, according to a United Nations food price index.

Global commodity prices have since retreated from those highs, but it may take a while before consumers feel the impact. Margarine on the shelves now was likely made with oils that manufacturers bought at higher price levels months ago, Marshall said.

Margarine prices swelled by about 4% in the month from August to September, meaning they've continued to trend upward in the short term.

The war in Ukraine, a major global food producer, has been perhaps the most significant driver of the price increase over the past year, economists said.

Why the war in Ukraine is affecting margarine prices

A destroyed Russian vehicle lies in a sunflower field in the Kharkiv region of Ukraine.

Maxym Marusenko/NurPhoto via Getty Images

Importantly, Ukraine is the world's No. 1 producer and exporter of sunflower oil, which accounts for 9% of all vegetable oil produced globally. The sunflower is the country's national flower, and became a symbol of solidarity for supporters after Russia's invasion in February.

Ukraine accounted for 31% of global sunflower oil production in 2021, according to the U.S. Department of Agriculture. But the war crimped those exports, Marshall said.

"Market uncertainty about sunflower oil supplies from Ukraine has created additional demand for other vegetable oils, such as palm, soybean, and canola," the department wrote in June. "Supplies of these alternatives are expected to be tight in the 2021/22 marketing year, contributing to elevated vegetable oil prices."

Further, Indonesia and Malaysia are the world's No. 1 and No. 2 producers of palm oil, respectively. Together, the countries represent 84% of the global supply, according to the Agriculture Department.

Palm oil accounts for 35% of all vegetable oil made globally, the largest share relative to the aforementioned oil commodities.  

Indonesia — which alone accounts for over half the world's palm oil — imposed a temporary ban on exports in April. That ban lasted three weeks, though other restrictions such as an export levy were kept in place longer.

A severe drought in Canada's prairies also led to a 35% drop in canola-oil production during 2021 and 2022, according to the Agriculture Department. Canada is the world's biggest exporter of canola oil. Indeed, the word "canola" is a combination of "Canada" and "ola," referring to oil.

And Brazil, the world's biggest soybean producer and exporter, saw yields fall 14% last year due to weather conditions caused by the La Nina oceanic and atmospheric phenomenon, according to Gro, a data provider.

'Slightly bizarre' mix of factors raises food prices

The impact of Russia's invasion of Ukraine extends much more broadly than sunflower-oil exports: It has disrupted supply lines and raised costs across the global energy and food complex.

Annual oil prices — and those of oil byproducts, such as gasoline and diesel — skyrocketed as a result. Inflation for the overarching "energy" category is up 20% in the past year, leading to higher production and distribution costs to bring food from farm to table.

All the costs that go into producing a stick of butter, all those costs have risen.

Matt Herrick

spokesman for the International Dairy Foods Association

Wages have also increased across the U.S. economy at their fastest pace in decades amid historic demand for workers. That dynamic has translated to higher labor costs for food manufacturers and distributors that, ultimately, nudge up supermarket prices.

"It's this slightly bizarre mix of a whole bunch of different factors that have basically all happened at once," said Andrew Hunter, senior U.S. economist at Capital Economics. "As a result, you have this widespread increase in food prices."

'Global milk supplies have tightened'

Hauke-Christian Dittrich/Picture Alliance via Getty Images

Butter has faced a "variety" of other headwinds, too, said Herrick, of the dairy producers group.

Milk is its foundational ingredient. It takes roughly 21 pounds, or more than 2.5 gallons, of whole milk to make a pound of butter.

But milk output among the world's major exporters fell in 2022 through May — by 6% in both Australia and New Zealand and by 1% in the European Union, according to the Agriculture Department.

"Since the end of 2021, global milk supplies have tightened, propelling prices for manufactured dairy commodities higher," the department wrote in a July report. Supply will likely remain tight due to "hot, dry conditions" in the EU, the report said.

While U.S. output has been stable, the country has increased exports to fill global demand, leading to a lower butter supply at home, Herrick said.

Net exports of butter tripled, to 19.3 million pounds, during the January-to-July period this year relative to the same time last year, according to the Agriculture Department. Butter stocks in cold storage were down 22% in August compared with a year earlier.

Higher feed costs for dairy cows — the price of soybeans and corn, in particular — have also contributed to rising butter prices, Herrick said.

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