Internet Article

“The three central coordination problems any economy must solve are what to produce, how to produce it, and for whom to produce it” (Colander, 2004a, p. 5). Generally, individuals want more than is available which creates a problem of scarcity where there are too few goods available to satisfy individual desires. As our textbook states, “all scarce goods or rights must be rationed in some fashion. These rationing mechanisms are examples of economic forces, the necessary reactions to scarcity” (Colander, 2004b, p. 9). The U.S. rations food by price which is determined by supply and demand. Despite technology advances, scarcity would never be eliminated as new wants are constantly developing as can be seen in the many new products continually introduced on the market. The attached article published in the Beaumont Enterprise in October of 2006 deals with the dilemma of scarcity and how it affected the United States (U.S) orange juice market at that time

The article described continually increasing prices of orange juice due to “Florida’s hurricane-ravaged groves” (Reed, 2006a) and sub-standard production three years running. The small crop yield estimates had continually driven price for consumers up as they were already paying a 9% jump in average retail prices of $4.83 per gallon while the market had met a 6 % drop in volume (Reed, 2006b). The increase in price works just as the law of demand states. The quantity of goods, orange juice in this case, is inversely related to price. That is the quantity demanded is higher then the quantity supplied which caused the prices to rise.

In this case, not only the consumers were affected but also the major juice makers like PepsiCo Incorporated and Coca-Cola Company were affected. PepsiCo owns Tropicana products and Coca-Cola owns Minute Maid. The article states that both companies get the vast majority of their juice from Florida, which is second only to the country of Brazil in orange production. These companies were facing a profit squeeze from rising domestic prices due to the shortage in supply from the hurricanes and “imports from Brazil that come with margin-killing tariffs of 30 cents per gallon” (Reed, 2006c). A tariff is an excise tax on an imported good. The low supply along with the extra price of the tariff tax was costing these companies greatly in this market as it left little profit if any to be made.

Due to this, both companies were forced to increase prices to meet rising costs and did so prior to an announcement made by the U.S. Department of Agriculture (USDA) of Florida’s decreased orange production. PepsiCo owned Tropicana