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Microeconomics is a branch of economics that studies supply and demand with regard factors that determine the prices and output of various products. It studies how businesses determine the prices of products and the quantity of products to supply in the market. Supply and demand determine the pricing of products by businesses. High demand and low supply lead to high prices and vice versa.
The article Hong Kong Baby Formula Smugglers Drain Milk Supply, City Takes Action as Citizens Appeal to U.S. for Help discusses a situation that occurred in Hong Kong in 2013 that affected the supply, demand, and price of baby milk formulas. The article was written by Grace Li and appeared on the Huffington Post newspaper. The article discusses the effect of certain policies in China on the demand, supply, and prices of baby milk formulas in Hong Kong. According to Li, the government of Hong Kong had reduced the size of luggage that an individual could carry on a train from 32 to 23 kilograms (Li, 2013).
This measure aimed to curb baby milk smuggling from Hong Kong to China. A commuter could only carry two cans of milk from Hong Kong to China by train (Li, 2013). Demand for Hong Kong baby milk increased after scandals hit the milk market in China. In 2008, a baby milk formula known as melamine milk powder attracted widespread criticism due to low quality. More than 300,000 Chinese babies fell sick after consuming the milk (Li, 2013).
According to Li (2013), this incident led to a surge in demand for baby milk from Hong Kong because of its high quality. Chinese civilians flocked Hong Kong to buy baby milk. This caused a rise in demand for baby milk and a subsequent rise in price. Baby milk supply was low because demand was very high. An analyst at China Market Research Group argued that consumers flocked Hong Kong because they did not trust Chinese milk products (Li, 2013). On the other hand, Chinese had high import taxes that made business difficult. Therefore, residents travelled to Hong Kong, bought baby milk tax free, and transported it to China where they sold it at high prices (Li, 2013).
Smuggling of baby milk into China caused shortage that led to high prevalence of malnutrition among babies in Hong Kong. The people of Hong Kong sought help from the president of the United States because their government had failed to resolve the issue. The situation was made worse by the varied ideologies of China and Hong Kong. The communist ideologies of China did not match the Capitalist ideologies of Hong Kong. This led to differences in policies. For instance, China had stringent import tax policies while Hong Kong had flexible tax policies that lured Chinese civilians. The author demonstrates the effects of the shortage on the price of milk. A brand of baby milk that cost $33.52 in Honk Kong went for $41.97 in China (Li, 2013).
Residents of Hong Kong were complaining because smuggling of baby milk formulas had caused a decrease in supply. Decrease in supply led to a surge in the price of baby milk. Owing to the shortage, some business owners only sold milk to people who bought it for their babies (Li, 2013). This measure was aimed at eradicating smuggling. Chinese residents also bought milk from other countries like Europe and Australia.
The article discusses the effect of smuggling on supply, demand, and price of baby milk in Hong Kong. Stringent import tax policies and low quality of baby milk prompted people to buy milk from Hong Kong. This led to a surge in demand and price of milk. Low supply and high demand led to an increase in milk price.
Reference
Li, G. (2013). Hong Kong Baby Formula Smugglers Drain Milk Supply, City Takes Action as Citizens Appeal to U.S. for Help. Web.
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