The price depends on many factors, among which though demand and supply are particularly important. Even a slight shift in supply and demand can affect the price of the product. In this respect, it is possible to refer to the market of milk, which may and does face a number of challenges in the contemporary business environment, including the risk of the appearance of substitutes, such as soy milk as well as changes in the quantity of milk being supplied or demanded in the market.
At this point, it is possible to dwell upon some of risks and trends that do occur or may occur in the milk market. First, if more people start drinking soy milk, the milk market may face considerable changes in terms of supply and demand and naturally price. To put it more precisely, soy milk may become a substitutes for the conventional milk. The costs of the production of soy milk are lower compared to the conventional milk. Therefore, the rise in the consumption of soy milk may lead to the overproduction and oversupply of the conventional milk because the demand on the conventional milk will drop and producers of the conventional milk may fail to respond adequately to the change in demand. Therefore, the quantity of milk demanded will drop and milk producers will have to decrease the quantity of milk production too.
At the same time, the milk market may face such threats as the threat of epidemics. For instance, if there is a mad cow disease epidemic, the milk market is likely to face a profound crisis. The demand on milk is likely to drop consistently because customers will grow anxious about safety of milk for their health. In such a situation, producers of milk will have to drop the supply that will lead to the consistent drop of the quantity of milk in the market. On the other hand, producers of milk will have to guarantee the safety of their products before introducing milk in the market.
If the price of milk increases, the demand on milk is likely to grow, whereas the supply, in contrast, is likely to decrease or remain unchanged. The growth of demand and the widening gap between the demand and supply leads to the growing deficit of milk in the market. Therefore, consumers are ready to pay a higher price to buy milk. Milk producers and sellers are likely to increase the price to decrease the demand and to balance the demand and supply. Alternatively, they will have to increase the supply to keep the price unchanged.
Finally, if the government decides to implement a price ceiling on milk, the supply may drop, especially if the production of milk becomes unprofitable. At the same time, companies can, in contrast, increase the production of milk to maintain their profitability because a price ceiling on milk is likely to limit their profitability. Therefore, milk producers can maintain their profitability through the increase of the supply of the milk in the market.