Economics MOD003327: Demand, Supply & Price in UK Cheddar Market

This essay examines the cheddar cheese market in the United Kingdom, focusing on the factors that influence the demand, supply, and price of cheddar cheese. It uses economic concepts such as demand-supply analysis and market equilibrium to understand the market dynamics. The essay identifies factors affecting demand, including income levels, prices of related goods (substitutes and complements), and consumer preferences. It also discusses factors affecting supply, such as input costs. The analysis includes graphical representations to illustrate how changes in these factors impact the equilibrium price and quantity of cheddar cheese in the UK market.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Introduction
Market, can be defined, in the conceptual framework of economics, as the place
where the buyers and the sellers of different commodities engage in mutual interactions and
negotiations to decide on the aspects like those of the demand, supply and prices of the
concerned commodities and services (Hildenbrand 2014). There remain different exogenous
and endogenous factors which have considerable implications on both the demand and supply
aspects of different commodities and services and which influence the level of commodities
produced and sold, which in turn have implications on the price levels of the same (Findlay
and Warren 2013).
The equilibrium situation in the market, thus, usually refers to that condition, where
the demand and the supply forces reach to a mutually agreed situation, that is, the equilibrium
in a market, in general is a situation where the demand for the concerned commodity is same
as that of the supply of the same and level of price and also the quantity of the concerned
commodities or services in this condition are known to be the equilibrium price and
equilibrium quantity of commodities and services respectively (Frank and Cartwright 2013).
In this context, the concerned essay tries to examine the cheddar cheese market in the
United Kingdom, specifically concentrating on the components affecting the supply and
demand of the concerned commodity in the United Kingdom and on the inter-relationship
between the demand, supply and the price of cheddar cheese in the market of the United
Kingdom. The concerned essay also tries to analyse the aspects of demand, supply and price
dynamics in the cheddar cheese market, using the conceptual framework of economics, like
that of demand-supply analysis and equilibrium in market and other related concepts.
Cheddar Cheese Market in the United Kingdom

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Cheese is one of the most consumed commodities in many countries of which the
United Kingdom is one of the primary ones. Different types of cheese are parts of the daily
and normal diet of the majority of the population of the country and thus, the commodity can
be termed as a normal necessity in the country (Irz and Kuosmanen 2013). As can be seen
from the following figure, the sales of different variations of cheddar cheese in the market of
the United Kingdom are as follows:
Figure 1: Sales of different variants of cheddar cheese in the United Kingdom
(Source: Statista.com 2018)
As is evident from the above figure, the sales of mature, extra mature and mild
cheddar cheese in the market of the UK are considerably high, which in turn indicates
towards the higher demand for these types of cheese in the concerned market (Burgess 2012).
Since cheddar cheese is a normal necessity, so the demand for the same is comparatively
inelastic, which in turn implies that the demand for the same does not change in the same

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proportion as that of the change in price and in general the rise in price decreases the demand
by a smaller amount (Yang, Li and Delios 2015).
Demand Supply Dynamics in the Cheddar Cheese Market in the UK
The conditions of the quantity and price of the cheddar cheese in the market for the
same in the United Kingdom, can be explained with the help of the demand and supply
conditions of the same, for which it is crucial to understand the demand and supply concepts
and the graphical representation of the same and the concept of equilibrium in the market. As
cheddar cheese in the United Kingdom is a normal necessity, therefore, the demand for the
same will have a negative relationship with the price of the same, that is, with the increase in
price demand will decrease and vice versa and the relationship is bilateral (Velčovská and
Sadílek 2015). On the other hand, with the increase in price of cheddar cheese the supply of
the same is expected to increase and vice versa, which in turn indicates the presence of a
positive relationship between the price and supply of the concerned commodity, in the market
of the UK (Lea 2016). This in turn, indicates towards a negatively sloped (less elastic)
demand curve and a positively sloped supply curve in the cheddar cheese market of the
concerned country, which can be seen with the help of the following figure, showing the
demand-supply dynamics:

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Figure 2: Demand, Supply and Equilibrium conditions in the Cheddar cheese market in UK
(Source: As created by the author)
The above demand-supply diagram shows that, the equilibrium condition occurs in
the cheddar cheese market in the United Kingdom, at the point where the demand and the
supply of the same equate with one another, that is at the point (E0), where the demand and
supply curves intersect each other (Boland 2014). This in turn, indicates towards the
equilibrium price and quantity of the same to be (P’) and (Q’) respectively, in the cheddar
cheese market of the United Kingdom.
Factors affecting demand as well as supply in the cheddar cheese market in the UK
There remain different factors which affect the supply and also the demand of
different commodities in the markets in general. Some of these factors act as catalysts for
increasing the demand or supply while some of the same lead to fall in the demand or fall in
the supply of the same, which in turn affect the average price levels in the market (Rader
2014). Keeping this aspect into consideration, the concerned essay tries to analyse the factors
which affect the demand as well as the supply of cheddar cheese in the market, which

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thereby, is expected to influence the price of the same in the cheddar cheese market in the
UK.
General factors affecting the demand and supply curves
In a generalised framework, there remains various exogenous as well as endogenous
factors which affect the demand and supply of commodities. These factors are as follows:
The supply of commodities is affected by common factors like that of the prices of the
inputs, technological progress, size of the market, policies and strategies taken by the
government, expectations, natural conditions, price of related goods, availability of inputs as
well as the transport and infrastructural aspects (Varian 2014). On the other hand, the demand
for a concerned commodity or service is usually determined by price and also non-price
factors like that of income levels, taste and preferences of the customers, price of the related
goods (substitutes and complements), level of competition and expectations of the
consumers. Keeping this into consideration, the factors having influences on the demand and
supply as well as the price levels of cheddar cheese in the UK market are discussed as
follows.
Factors affecting demand for cheddar cheese in market of UK
There remain various factors which affect the demand and thus the price level of the
cheddar cheese in the market. Some of these are as follows:
Income of the population of UK
One of the primary factors affecting the demand for cheddar cheese in the market of
the United Kingdom is that of the income of the population of the concerned country. In
general, the increase in the income of the majority of population of the country is expected to

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increase the demand for the consumption of cheddar cheese in the market of the United
Kingdom, the effects of which can be seen to be as follows:
Figure 3: Demand increase for cheese due to rise in income of the population
(Source: As created by the author)
As the above figure shows, due to the increase in the income, the demand for cheddar
cheese is expected to increase in the UK, which in turn leads to the shift in the equilibrium
from E0 to E1, where both the quantity of cheddar cheese as well as the price of the same are
expected to increase (Cowell 2018). On the other hand, with the fall in the income of the
population of the country, the demand for cheddar cheese is expected to fall which in turn is
expected to shift the demand curve inward, thereby decreasing the price and the quantity in
the new equilibrium.
Price of the related goods (Substitutes and Complements)

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The prices of related goods of cheddar cheese also have considerable impacts on its
demand. If the price of substitute good of cheese (like that of butter or margarine) decreases,
then the demand for the same tends to rise in such situation. This is expected to make people
substitute cheese with the same, which in turn, in all probability, decrease the demand for
cheddar cheese in the market, the effects of which can be seen to be as follows in the market:
Figure 4: Decrease in demand for cheese due to increase in demand for substitutes
(Source: As created by the author)
Because of the fall in the demand for cheddar cheese, as a consequence of an increase
in the demand for its substitute commodity (like butter), the new equilibrium is expected to
come down from E0 to E1, thereby decreasing both the quantity as well as the price of the
same in the new equilibrium situation (Marschak, Glennan and Summers 2013).
On the other hand, the demand as well as the price of cheddar cheese in the UK
market are also expected to depend on the price of the complementary products like that of
wine, as people tend to consume wine and cheese together. Thus, when the price of wine
falls, the demand for the cheddar cheese is expected to increase, which thereby, is expected to

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raise the consumption of cheddar cheese also, in the concerned market, thereby leading to an
increase in the demand for the same, the effects of which can be seen to be as follows:
Figure 5: Increase in demand for cheese due to increase in consumption of wine
(Source: As created by the author)
Thus, in this condition also, the price as well as the quantity consumed of cheddar
cheese are expected to increase, in the new equilibrium in the concerned market in the United
Kingdom (Marschak, Glennan and Summers 2013).
Preference patterns of the consumers
The demand and the price levels of cheddar cheese in the United Kingdom also
depend considerably on the preference patterns of the consumers in the country. For instance,
in the recent period, there exist increasing awareness regarding the effects of consumption of
fatty and unhealthy foods, which in turn has been leading a significant share of the population

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of the developed countries, like that of the UK, to shift towards consumption of healthier
foods (Bauer 2018). This, if true, is also expected to reduce the demand for cheddar cheese as
the same contains considerable amount of fat. This in turn, is expected to have the following
implications in the cheddar cheese market of the concerned country, shown by the following
diagram:
Figure 6: Decrease in demand for cheese due to increased health awareness
(Source: As created by the author)
In this context, due to the fall in the demand for the same, the new equilibrium shifts
towards the point where the price as well as the quantity demanded of cheddar cheese
decrease than the initial condition (Tahir, Ghazali and Agil 2017).
Apart from the factors which affect the demand of cheddar cheese, there also remain
several crucial factors which have considerable implications on the level of supply of cheddar
cheese in the United Kingdom, thereby affecting the level of price of the same in the
concerned market. Some of these crucial factors can be seen to be as follows:

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Costs of inputs
The supply of cheddar cheese depends considerably on the costs of the inputs,
primarily like that of milk since it is the main component of cheddar cheese. If the price of
milk increases, then the cost of input for the production of cheddar cheese also increases
which in turn leads to the fall in the supply of the cheddar cheese in the United Kingdom,
which shifts the supply curve for the same leftwards, the implications of which can be seen to
be as follows:
Figure 7: Decrease in supply of cheddar cheese due to increase in price of milk
(Source: As created by the author)
The fall in the supply of cheddar cheese leads to a shift in the equilibrium from E0 to
E1, which in turn leads to a rise in the price and a fall in the quantity consumed of the same in
the market of the United Kingdom as due to the rise in the price less people will be able to
afford the same.

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Technological Progress
Another crucial aspect which influences the level of supply of cheddar cheese in the
United Kingdom, is that of the technological advances in these aspects. Generally,
technological advancements in the production of different commodities lead to more efficient
and cost-effective production of the same, which is also the case for cheddar cheese
production. An improvement in the technological aspects of cheese production, is expected to
increase the supply of cheddar cheese at the same cost of production, the effects of which can
be seen with the help of the figure as follows:
Figure 8: Increase in supply of cheddar cheese due to increasing technological progress
(Source: As created by the author)
The technological improvements are expected to increase the supply of cheddar
cheese, which in turn is expected to shift the supply curve rightwards, thereby leading to
increase in the quantity consumed of the same and also a simultaneous fall in the price of
cheddar cheese in the market of the United Kingdom (Riley 2012).