Got Milk?

Are we, as Canadians, paying too much per litre for milk?  An article written by Kenyon Wallace of The Toronto Star (2011, November 20, Is the Price of Milk too High?, Retrieved December 3, 2011, from www.thestar.com/news/insight/article/1089581--is-the-price-of-milk-too-high) attempts to determine the contributing factors for the cost of milk and if Canada should move towards a US or Australian system of milk pricing. 

According to the article, the price system in Canada is outdated and is based on the three following factors:  cost to produce, the ability of consumers to buy and the Consumer Price index.  Different government level groups and committees determine the price for the fluid (drinking milk and cream) as well as the industrial (ice cream, cheese, yogurt, etc.) milk. 

The current price per litre of milk in Canada is $0.90.  This price represents the current balance between demand and quantity and will bring everyone involved in the process of creating milk a maximum Total Revenue.  If this price were to decrease, an increase in demand would occur.  Similarly, if an increase in price were to happen, the demand for milk would decrease. 

As there are other alternatives available to milk (soy milk, almond milk, water, etc.) which indicates that the price of milk is quite elastic.

As the price of milk rises, the demand for milk decreases.  In addition, as the price of milk rises, the total revenue increases until the maximum total revenue is reached before total revenue begins to fall.  It should be noted that when maximum total revenue is reached, demand is unitary elastic.