ARG-153

The following appeared in a letter to the editor of a Relannian newspaper.

Industry analysts report that the number of dairy farms in Relanna has increased by 25 percent over the last decade. Also, recent innovations in milking technology make it possible for farmers to significantly increase the efficiency of the milking process, allowing them to collect more milk in less time with minimal human intervention. In fact, data from the Relannian Department of Agriculture indicate that labor costs at the majority of Relannian dairy farms are actually lower now than they were ten years ago. Despite increased efficiency and lower labor costs, a carton of cream — a dairy product made from milk — at the local food market costs twice as much as it did two years ago. The only explanation for this dramatic price increase is that farmers are inflating the price of cream to increase their profits.


Write a response in which you discuss one or more alternative explanations that could rival the proposed explanation and explain how your explanation(s) can plausibly account for the facts presented in the argument.


In this letter to the editor of a Relannian newspaper, the author attributes the doubling price of a carton of cream over the past two years to greedy framers’ deliberate price gouging to increase their profit. Underneath the author’s lines of reasoning lie three pieces of facts. First, the number of dairy farms in Relanna has increased by 25% over the past ten years. Second, recent progresses in milking technology innovations greatly enhance then efficiency of the milking process. Third, thanks to the aforementioned technological advancements, labor costs at most Relannian dairy farms are lower than they were a decade ago. Citing these observations, the author assumes that there should be an increase in milk supply and a decline in the cost of milk production. Thus, the price of cream, a dairy product made from milk, should also decline, the author claims. Eventually, the farmers should take the blame for the rise in cream prices according to this letter. While the author’s interpretation may indeed be the correct, it cannot be confidently established given the limited information at hand. There are several other possibilities that could lead to the increase in cream prices.


First, the price could be affected by the supply and the demand of cream. On the supply side, a higher supply of milk may not necessarily mean a greater supply of cream, as there are many ways that milk can be utilized. It could be the case that in Relannian, most of the milk supply is used for purposes other than making cream. For example, perhaps the majority of Relannian dairy farms simply export milk to food markets where consumers buy milk for direct consumption. In this scenario, if direct consumption of milk in Relanna witnessed a sharp increase that surpassed the growth in milk production, the cream price spike can be attributed to a lack of milk for making cream. Alternatively, it is entirely possible that most of the milk produced in Relannian is turned into other dairy derivatives such as yogurt and butter. The production of such dairy derivatives could also have increased dramatically over the past years, competing with cream production for milk, the raw materials for both agricultural processes. Either way, a decline in milk supply to cream makers could cause a decline in the supply of cream, which eventually leads to a higher cream price.


On the demand side, it is possible that people’s demand for cream has significantly increased over the past couple of years. The reasons may be manifold, such as a large influx of immigrants into Relanna and a subsequent population boom. When there are more consumers in the market than supply can keep up with, it is understandable that the price of a merchandise will hike in response to this outsized demand. Cream may be no exception in Relanna. In addition to a larger Relannian population, a change in lifestyle in Relanna may also impact people’s consumer behaviors. It might be the case that over the past few years many health benefits of cream were discovered, and as a result people in Relanna became more passionate than ever to purchase cream. Such possibilities would also imply a greater demand for cream and a higher price would likely ensue.


Finally, even if it is acknowledged that the demand and the supply of cream has remained stable over the past two years, what remains unclear is the value of the currency used by Relannian residents. In other words, the soaring price of cream could be simply due to the devaluation of the currency, which in turn could be due to a financial crisis plaguing the entire country or sanctions by more powerful foreign nations. This possibility should be easily testable, since the price of other merchandises in this case should more or less double, too. Yet, since the author only offers price information of creams, this possibility remains to be evaluated.


To summarize, while it is true that cream producers’ greed may be the reason behind the doubling price of a carton of cream according to the author, this is not a conclusion that can be safely arrived from existing information. There are at least three other alternative explanations that could rival the author’s interpretation.


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