No-Brainer? Germans Cut Back on Beef Due to Mad Cow Disease
Subject Comparative statics
Topic Equilibrium
Key Words Consumers, consumption, prices, ban, tax
News Story

Germany thought it was immune from mad cow disease, which has afflicted other countries in Western Europe, especially the United Kingdom, Ireland, Portugal and Switzerland. However, in November it found its first case and has since discovered eight more. The danger is that infected beef can cause a human form of the disease: 87 people have died from it so far in the UK, as well as three in France and one in Ireland.

Consumers have responded quickly. Beef consumption is down by at least half, and 40 percent of Germans vow never to eat beef again. One reason is that the disease has a long gestation period in cattle and humans, so it is difficult to be certain problems will not arise in the future in spite of steps being taken by the government. Prices are being driven down.

The European Commission has proposed a ban on meat attached to the backbone of cattle more than a year old. This would mean no T-bone steaks could be sold. The German government, like other governments, has banned the use of feed including bone meal or other parts of dead animals - which is thought to be the cause of mad cow disease. The Germans plan to slaughter and incinerate cows more than 30 months old, the highest-risk group. (The government proposes to tax the public to pay for the slaughter. German farmers are fighting the idea.) Posters featuring prominent chefs are being used to reassure consumers. The hope is that consumer confidence will be restored as the number of new cases declines.

In the meantime, consumers are turning to other meats, such as poultry, pork, horsemeat, and ostrich, or are eating beef from Argentina or from organic farms.

(Updated March 1, 2001)

1. Draw a supply and demand diagram of the market for beef. Show the initial equilibrium.
a) Show the effect of consumer concern over the possible health consequences of contaminated beef. Why did you move the curve you did? Which determinant changed?
b) One response has been to plan to slaughter and incinerate older cattle. What will happen to the equilibrium price and quantity of beef as a result? Illustrate your answer.
c) If beefeaters are taxed to pay for the slaughter, which curve will move and how? Why? What will happen to the equilibrium price and quantity? Illustrate. Why are farmers alarmed at the tax proposal?
d) Assuming the poster campaign is successful, how will it affect the equilibrium? Show what would happen on your diagram.
2. Now draw a supply and demand diagram of the market for ostrich meat.
a) Show what happens to the equilibrium when consumers come to prefer ostrich meat rather than beef.
b) What kind of good is ostrich meat relative to beef? Explain why using economics.
Source Steven Komarow, "Mad cow crisis infects Germany," USA Today, February 8, 2001.

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