How Will Peanut Price Hike Impact Related Items?


General equilibrium ain’t just peanuts. With the tremendous shortfall in the peanut harvest (a decline of 17%) due to the unusually dry weather in peanut-growing states, people are expecting a rise in the price of this main input of peanut butter to cause supply to shift leftward. Jif peanut butter expects to raise its price by 30% starting in November.

I doubt that its sales will go down much—I think the demand for peanut butter is fairly inelastic. But what about related markets? If everyone likes peanut butter and mayonnaise sandwiches as much as I do—if peanut butter and mayonnaise are complements—then we’ll see a leftward shift in demand for mayonnaise, and its price will decline. Have I held too much of the ceteris paribus, or not enough? Where should one stop?

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  1. RN says:

    are people willing to sacrifice eating peanut butter and mayonnaise if the price increases?? is it a necessity for some people??

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  2. Graceeeeee says:

    Will peanut butter here be a normal good, an inferior good, or a luxury good? Because that will affect the elasticity of the good, and hence the demand and supply.

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  3. Alex Yang says:

    Well, this mostly depends on the opinions of the majority, whether they like peanut butter and mayonnaise sandwiches. If the majority of the people like them, peanut butter and mayo should be complements. So yes, the demand curve for mayo should move to the left. However, if most people don’t like peanut butter and mayonnaise sandwiches, peanut butter and mayo should be substitutes, and the demand curve for mayo should move to the right if the supply curve of peanut butter shifts inwards.

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  4. Puneet Siri says:

    according to this forum and the student body in my class, there is very minimal impact of the demand of peanuts on the demand of mayo. your prediction is unlikely.

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  5. Puneet Siri says:

    ceteris paribus

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