Economics for your Classroom from Ed Dolan’s Econ Blog Nuts, Cows, and Bees: Why the Price of Almonds is Soaring November 12, 2013 Ed Dolan’s Econ Blog Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0. You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.Attribution—Share Alike 3.0 Introduction to Economics

Almonds are Good, and Good for You  Almonds are delicious!  They are healthful!  High in healthy monosaturated fats  High in protein  Good source of vitamins and minerals  The many uses of almonds  Savory snacks  Candies and pastries  And now, almond milk Nov. 12, 2013 Ed Dolan’s Econ Blog

But Almond Prices are Soaring. Why? Nov. 12, 2013 Ed Dolan’s Econ Blog  This chart shows the prices of three kinds of almonds grown in California  Depending on the variety, prices are two to three times higher than five years ago

Cows’ Milk is Out, Almond Milk is In  Changing consumer tastes are one factor affecting almond prices  Americans are drinking a third less cow’s milk than they did in the 1970s  At first soy milk was the preferred nondairy replacement  Now almond milk, which has fewer calories and, to many a better taste, is gaining fast  Consumer tastes are also changing in China, where demand for almond milk and other almond products has recently been growing by 30 percent per year Nov. 12, 2013 Ed Dolan’s Econ Blog Almond Milk is popular around the world. This stylish bottle comes from Italy

Question: How Does a Change in Consumer Preference Affect Price? How does the growing consumer preference for almond milk affect the price of almonds?  Does the demand curve shift? If so, show the new demand curve  Does the supply curve shift? If so, show the new supply curve  Show the new equilibrium price Nov. 12, 2013 Ed Dolan’s Econ Blog

Answer: How Changes in Consumer Behavior Affect Price  Increased preference for almond products means that consumers are willing to buy more at any given price  That change is shown by a shift of the demand curve to the right, from D 0 to D 1  Consumer preferences have no effect on costs of production, so the supply curve does not shift  In response to the increase in demand, producers move up and to the right along the supply curve  The market reaches a new equilibrium at the price P 1 Nov. 12, 2013 Ed Dolan’s Econ Blog

Who Produces Almonds?  California is by far the biggest producer of almonds, accounting for about 80 percent of the global crop  For many years, output grew steadily, but the 2013 harvest, although still expected to be the third largest in history, will show a small decrease in output for the second year in a row Nov. 12, 2013 Ed Dolan’s Econ Blog

The Essential Roll of Bees  Bees are essential to pollination of California’s almond crop  More than 1.5 million hives are needed each year  Recently, the mysterious colony collapse disorder has greatly increased bee losses  In response, beekeepers have doubled or trebled the price the demand for their pollination services Nov. 12, 2013 Ed Dolan’s Econ Blog

Question: How do Pollination Costs Affect the Price? Other things being equal, how does an increase in pollination costs affect the price? (Begin from P 1 in your answer to the previous question.)  Does the demand curve shift? If so, show the new demand curve as D 2  Does the supply curve shift? If so, show the new supply curve as S 2  Show the new equilibrium price as P 2 Nov. 12, 2013 Ed Dolan’s Econ Blog

Answer: How Higher Pollination Costs Affect the Price  Other things being equal, an increase in pollination costs will mean that a higher price will be needed to persuade growers to supply any given quantity of almonds  The supply curve to shift upward from S 0 to S 2 as shown here.  Other things being equal, pollination costs will not affect the demand curve  The market moves along the demand curve as shown until the price rises from P 1 to a new equilibrium at P 2 Nov. 12, 2013 Ed Dolan’s Econ Blog

The Bottom Line Nov. 12, 2013 Ed Dolan’s Econ Blog Expect almond prices to remain high at least until a solution is found to the vexing problem of dying bees

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