66

I would like to contradict Kenny LJ explicitly on his claim that "the free market works". It only works if the market is actually free, i.e. competition exists. Which, you can argue, is not the case in the milk market. What you are looking at is a cartel. (Excuse me for citing numbers for the German market, not Australia, as I am more familiar with that ...


48

Please also see the new Additional Addendum at the bottom written a few days after I first wrote this answer. You are correct and not missing anything. Absent good reasons to the contrary (and none have been given here), we may presume that the free market works. If the Queensland milk industry is being "squeezed", then this suggests that there are ...


12

Getting milk from the dairy farm to the retailer is too expensive for individual farms to manage on their own, with transporting, processing and packaging. There are also a host of consumer and health regulations that prevent dairy farms selling direct to consumers without first processing the milk. They are dependent on distribution networks to buy and ...


9

The Iranian organ market It might be worth looking into the organ market in Iran. Unlike in other countries, it is legal to sell your kidney to patients who need a new one. The process is regulated and charities actively help pay for patients who cannot afford to pay the donor themselves. The result is that a kidney, which would cost more than $100.000 on ...


8

Not sure about Australia, but in America it's quite common for a large retailer to simply dictate to the producers the price they will purchase the commodity from them for. If a farmer's primary customer can simply declare that they will be paying 5% less for a product, the farmer really does not have much recourse. Or, if for whatever reason the ...


6

Other answers and comments have outlined the general economic principles at work here. Here are the details unique to Australia: Two companies, Coles and Woolworths, control the majority of the supermarket sales in the country. Critics call them a "duopoly." There are other stores, but the big two dominate. Their control of the market allows them to ...


5

One example of what you are looking for would be drug prohibition. A drug prohibition cannot effectively eliminate drug supply only suppress it so I suppose that would qualify as control of supply. Studies show that lifting drug prohibition leads to higher availability and lower prices for drugs but at the same time these effects are not always large even if ...


4

The quote in the question isn't really rigorous about what a free market is, but it talks about monopolies and artificial scarcities, so I am interpreting the efficient outcome with price equal to marginal cost as being one necessary feature of what they understand as a free market. Let's look at the cournot model of competition. There are $n$ firms, each ...


4

Farmers cannot operate as ideal model businesses that can just turn off and on without impact. Only large corporations can even approach that level of abstract capitalism. More specifically farmers (1) have certain minimum expenses both for family and farm related (loan payments), (2) are not diversified to get income from other product lines, (3) have ...


3

There is one universal "solution" to monopolism without government intervention. Just allow the monopoly to do its worst. It will give very strong incentives to find ways to satisfy needs of potential clients of the monopoly in ways that would diminish market force of the monopoly. Basically it's bet that human creativity will eventually tame (or even kill) ...


2

As a part of the overall financial system, such instruments can increase market efficiency and facilitate exchanges. Since all such instruments are essentially backed by government monopoly rights (at the most basic, the monopoly held by governments to create money) they would fall under "land" in terms of the classical factors of production. While it may ...


1

Leaving aside the cases of platform markets and other externalities and natural monopolies, what people who have no training in economics usually miss is question of the size of the market. It may very well be that there is enough demand for only one company to be profitable with the available technology. If a second company attempted to enter the market, it ...


1

Your economical assumptions are completely correct. There are too many farmers/dairies and the least profitable should shut down. What you are missing is that the least profitable farmers are, well farmers. They know no other trade and have probably inherited it. They can't easily switch jobs and they probably do not want to give up 'the family business.' ...


1

1- Some basic macroeconomic fundamentals I highly doubt a trade imbalance is causing high inflation. The trade deficit is likely happening because of economists call "Twin Deficits". I'll spare you the accounting that leads to this equation and present you a setorial balances identity. Let $S$ be private savings, $I$ be capital formation, $G$ be government ...


1

At a market equilibrium, marginal cost and marginal utility are equal. This does not mean that the cheaper good is preferred. Note that the US imports primarily higher quality steel at a higher price, and not lower quality steel at a lower price. Regarding the subquestion: As for how it could cause a trade war, this is probably related to a belief that if ...


1

You asked "why is cheaper always being preferred". Well, it's not. People routinely pay more for quality. Cheaper is almost always preferred for identical products. But cheaper is not always preferred for goods that are only partial substitutes. For example, a well-made pair of shoes that will last ten years, will cost more than an equally-comfortable pair ...


1

Depends on what you mean by 'possible'. The liquor stores in your example could form a union, and collectively bargain with brands. Then if a brand breaks a contract with one of them, they all break the contract. This would greatly disincentivize the brands' strong arm practice. In my opinion this is unlikely to work (it is very hard to organize), but it is ...


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