Macroeconomic Concepts
rchiefdev
Paper1.docxRunning Head: FOOD MANUFACTURIG INDUSTRY 1
FOOD MANUFACTURING INDUSTRY 2
The Manufacturing Industry: Food Manufacturing
ECO100 | Principles of Economics
Strayer University
Robert DeVos
Professor David D. Smith
February 3, 2019
The Manufacturing Industry: Food Manufacturing
The manufacturing industry is a branch of manufacture that deals with the process of transforming, fabrication, processing, and preparation of raw materials/components into finished products. The manufacturing industry is vast and is divided into the following categories, food manufacturing, tobacco and beverage manufacturing, electronic and electronic equipment manufacturing, apparel manufacturing, textile manufacturing et cetera. The food manufacturing sector forms a large segment of the economy and contributes heavily to the GDP. This is because human beings consume different types of food products daily. Like any other industry, the food manufacturing industry is affected by both macro and micro-economic factors which influence trading activities the market of its output. This essay, therefore, aims to discuss these factors and highlight the various market characteristics and market structures that exist in this industry.
Market Structure of the Food Manufacturing Industry
Monopolistic Competition Market Structure
The food manufacturing industry operates under the monopolistic competition market structure. This is because this industry is composed of different firms who compete for the same customers and produce slightly differentiated products. This means that each firm’s decisions are independently made and they consequently influence the firm’s overall cost of production without affecting the industry as a whole. In this industry, there are no barriers to entry this means that entrepreneurs can freely enter and leave the industry as they please the only factor affecting this freedom is that the equipment needed to start a firm in this industry are quite expensive. This means that as much as there is the element of free entry, there are few players in this industry because not so many people can afford to buy the necessary manufacturing equipment.
Market Characteristics
· Freedom of entry and exit into the industry
· Information asymmetry as firms make decisions independently
· Firms act as the price setters in the markets as they have varying costs of production and there are few players.
Microeconomic Trends
National economies are often competing in the food manufacturing industry, and this has led to changes in supply and demand in the market for finished products. There have been positive changes in the US economy, and this has led to positive changes in the food and beverages manufacturing. Notably, consumer preferences and interests in locally manufactured food products has exploded, and this has led to the development of disruptive innovation on the supply side. The following graph represents how interest in manufactured food and food products has increased over the years leading to an increase in demand for the products.
s
Retrieved from: https://images.firstwefeast.com/complex/image/upload/c_limit,f_auto,fl_lossy,q_auto,w_1100/lzmwrwup2dswgmhmrpes
Government Intervention
Like any other market, the market for food products suffers from market failures. This happens when the market fails to allocate the available goods and services efficiently amongst all market agent. When this takes place, there is a need for government intervention to correct the shortcomings created by the market. The following are examples of how the government intervenes in the food market.
Government and Nutrition
The government is responsible for monitoring the health of its citizens. If for example a large percentage of the population is found to be obese the government will take some measures to rectify this. First, the government may decide to increase the prices of junk food. This will discourage individuals from buying this food. A decrease in demand will lead to a decline in supply. The government may also decide to ban the advertisements of such foods through different policies. A ban on advertisements will also lead to a decrease in demand. Such interventions by the government affect the food industry immensely (Mozaffarian, Angell, Lang, & Rivera, 2018) there will be a decrease in overall output due to low demand and an increase in prices as prescribed by the government. A section of the food manufacturing industry will be significantly affected by such actions and may generate fewer profits.
Notably, the food manufacturing industry is one of the fast-growing sectors globally. As the demand for the products increases so does the supply. There is however need for government intervention in the market for these goods, due to the existing market failures. The government intervention strategies and policies may seem unfair to the suppliers for these good but are favorable to the citizens. The market for these goods should, therefore, be regulated by the government from time to time.
References
Mozaffarian, D., Angell, S. Y., Lang, T., & Rivera, J. A. (2018). Role of government policy in nutrition—barriers to and opportunities for healthier eating. BMJ, k2426. doi:10.1136/bmj.k2426
