News articles say that the Israelis are “cheesed off” and “curdled.” Angered by the soaring price of cottage cheese, a Facebook consumer group of 70,000 friends has agreed to stop buying it on July 1. The headline on the boycott page said, “Let it stay in the stores and spoil until the price comes down.”
This “tempest in a tub” began when cottage cheese price caps were removed. You can guess the result. The price of a 250 gram (9 ounce) container soared from 4.82 to 8 shekels ($2.30). A national breakfast staple, Israeli cottage cheese (just like Coca-Cola) has a secret small curd formula.
The Israeli Facebook group appears to want a cottage cheese price cap.
The Economics Lesson
During the early 1970s, to control inflation, U.S. President Richard Nixon implemented wage and price controls. Like taking the cover off a pressure cooker, when the controls were lifted, prices immediately jumped.
As economists, we can explain why with a demand and supply graph. With the demand curve sloping downward, the supply curve sloping upward, the Y-axis price and the X-axis quantity, the curves meet at an equilibrium price and quantity. The market pushes toward equilibrium. Above equilibrium? There is a surplus. Below equilibrium? There is a shortage.
An Economic Question: Why are price controls called a ceiling?Read More