Cranberries--what happens to the Surplus?

1. Pe
Price
Of
Cranberries
Market for Cranberries
8 M
Qs=Qd
Quantity of Cranberries
D*
S*
“A”
The Market for Cranberries in equilibrium
at Price “Pe” and Quantity of 8 million barrels where
Quantity Supplied = Quantity Demanded.
(Private Market)

2. Pe
Price
Of
Cranberries
Market for Cranberries
8 M
Qd
“B”
Quantity of Cranberries
D*
S*
“A”
16 M
Qs
The Harvest for 2014 is much higher
than expected. While the market absorbs
8 million barrels (Quantity Demanded) the Quantity Supplied is 16
million—Point “B”.
Quantity Supplied is GREATER THAN Quantity Demanded.
(Private Market)

3. Pe
Price
Of
Cranberries
Market for Cranberries
“A”
8 M
Qd
S*
“B”
16 M
Qs
Quantity of Cranberries
The Market Supply Curve, “S 1” shifts to the RIGHT
indicating an INCREASE in Quantity Supplied
S 1
at any given Price.
D* (Private Market)

4. Pe
Price
Of
Cranberries
Market for Cranberries
8 M
Qd
“B”
Quantity of Cranberries
The Market PRICE wants to DECREASE
To Point “C”, which would be good for
Consumers but bad for Producers of
Cranberries.
D*
S*
“A”
16 M
Qs
S 1
“C”
(Private Market)

5. Pe
Price
Of
Cranberries
Market for Cranberries
8 M
Qd
“B”
Quantity of Cranberries
D*
S*
“A”
16 M
Qs
S 1
“C”
(Private Market)
SURPLUS
If the Price did not decrease we would
Have a SURPLUS of 8 M barrels of Cranberries
Instead of a Surplus of something less than 8 million
(the Quantity Demanded would increase at a lower
price absorbing some of the Surplus.
How can we resolve this?

6. Pe
Price
Of
Cranberries
Market for Cranberries
8 M
Qd
“B”
Quantity of Cranberries
The Government can step in and become
a market participant on the DEMAND side.
D* (Private Market)
S*
“A”
16 M
Qs=Qd
S 1
D 1 (Private Market + Govt)

7. Pe
Price
Of
Cranberries
Market for Cranberries
8 M
Qd
“B”
Quantity of Cranberries
At “Pe” the government would increased the
Quantity Demanded by 8 million barrels of
Cranberries to absorb the increase of 8 million in
Quantity Supplied— Point “B”.
The Demand Curve (“D 1”) for Cranberries would
shift to the RIGHT
The Price would remain at “Pe” at Quantity 16M.
Producers happy and Consumers none the wiser.
D* (Private Market)
S*
“A”
16 M
Qs=Qd
S 1
D 1 (Private Market + Govt)

8. Pe
Price
Of
Cranberries
Market for Cranberries
8 M
Qd
“B”
Quantity of Cranberries
It is not realistic to think the Govt will pick up all
this slack. Cranberry producers could collectively
seek to promote the benefits of Cranberries to
individuals and those in the food industry as a
stand alone product or a complement to some
other existing product.
D* (Private Market)
S*
“A”
16 M
Qs=Qd
S 1
D 1 (Private Market + Govt)