Getting the Price of a Tart Cherry "Right"

I have always been taught that the price of a product depends on the supply and the demand for the product. That is to say if the supply of something is low and the demand is high then the producers can charge a higher price. Now I was also taught if the supply of something is low and the demand is high then established producers will increase the amount they are producing and new producers will enter into the market to provide more of the demanded item. After a period of time the supply will increase and the price to the consumer will fall. In economics we talk about a downward sloping demand curve and an upward sloping supply curve. This is the basis for most free-market economic theory.

This brings me to an interesting statement that I read today. Did you know that there is a Cherry Industry Administrative Board (CIAB)? And did you know that the CIAB is a creation of the USDA? And did you also know that the CIAB notes that its role is to make sure “the annual supply of tart cherries matches the demand for tart cherries”? Of course the CIAB enforces the amount of the annual supply with the force of the federal government.

Now I am not much of a cherry (tart or otherwise) eater but I am told that tart cherry are used for the production of 'cheery wine'. Anyone that wants to may grow tart cherries but if you want to sell your tart cherries you must have a permission slip from the CIAB. Much like high-school and your getting a hall pass.

What can I say? The federal government regulates the amount of “tart” cherries that may be marketed which controls the price of the product. If the federal government bureaucrats decide that the price is too high then they let the growers know they can sell a few more cherries or if they think the price is too low then the can reduce the amount of cherries allowed to be put on the market.

This is no skin off my nose because as I said before I don't like cherries or things made from cherries.

Isn't it good that the government is looking out for us by their knowing just how much demand there is going to be for this product and then acting on this future knowledge so that everything stays in balance? Of course if the CIAB did not exist then maybe folks would grow more tart cherries and/or new folks would get into the business of growing cherries and then the price to the consumer would reach its “true” level and everyone from producers to consumers, would know the real price of one tart cherry.

Jerry

P.S.

Just a quick note toremind you of the four basic elements of the Law of Supply and Demand (without government interference).

1. If demand increases (demand curve shifts to the right) and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.

2. If demand decreases (demand curve shifts to the left) and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.

3. If demand remains unchanged and supply increases (supply curve shifts to the right), a surplus occurs, leading to a lower equilibrium price.

4. If demand remains unchanged and supply decreases (supply curve shifts to the left), a shortage occurs, leading to a higher equilibrium price.



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