Short-Run Elasticities of Supply for Milk

One of the major criteria used to establish the level of prices in Federal Order Markets is the expected output response of producers. This paper is concerned with a method for estimating producer responses to short-run price changes of the so-called supply-demand adjustor type in these markets. The model used differs from many previous studies of output response by incorporating the usual production economics considerations within the marketing restraints of an existing Federal Order Market to provide a spatial supply response. With further aggregating procedures, the model appears to be a useful analytical device for appraising short-run pricing policies in these markets. Short-run price changes of the magnitude considered in this study induced extremely limited changes in output but substantial changes in producer incomes. These results seem to indicate that the policy goals of short-run pricing were not achieved in the Federal Order Market analyzed.