Name: Quina Lau (13) F.4B
Rebecca Lu (25) F.4C
Newspaper
Source: South China Morning Post
Date: 11th December 2009
News Analysis
Description of the News
A year ago, some products produced in the mainland of China were found to be
contaminated with toxic substances (melamine) which might cause kidney stones, kidney failures
and urinary tract problems. This time, tainted milk powder reappears in Shaanxi. The police
disclose the incidence when 5 tonnes of tainted milk is trying to enter the market. Three people
were detained while a company is accused of trying to sell toxic milk powder.
Analysis
Since last year, the nationwide scandal has badly affected consumers’ confidence in dairy
products produced in the mainland of China. At the same time, the Chinese government
promptly suspended the sale of many dairy products. This time the tainted milk powder
further decreases consumers’ confidence and the contaminated milk powder is suspended.
As a result, both the supply and demand for dairy products in mainland of China decrease.
3 possible results
1
P
D
D2
S2 S1
D1
When the decrease in demand
for dairy products is greater
P1
than the decrease in supply
for dairy products, both
P2
0
> S
equilibrium price and
equilibrium quantity will
decrease.
Q2
Q1
Dairy Products
Q
2
P
D
D1
S2
D2
S1
When the decrease in demand
for dairy products is equal to the
decrease in supply for dairy
products, equilibrium price will
P1 = P2
000
= S
be constant but equilibrium
quantity will decrease.
0
Q2
Q1
Q
Dairy Products
D
3
D
< S
P
D2
D1
S2
S1
When the decrease in demand
for dairy products is smaller
than the decrease in supply
for dairy products, equilibrium
P2
P1
price will increase but
equilibrium quantity will
decrease.
0
Q2
Q1
Dairy Products
Q
4
P
Demand for Hong
Kong’s products
D2
D1
Pe
Because Hong Kong’s diary
products are the substitutes of
Chinese diary products. So
when the demand for Chinese
0
Q1
Q2
Q
diary products decreases, the
demand for Hong Kong’s diary
products will increase. As a
result, the equilibrium price and
equilibrium quantity of Hong
Kong’s diary products will
increase.