Norwegian Butter Crisis: Excess Demand and Lack of Supply

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Name: Paul Maillis Commentary Number: 1 Due Date: April 20th, 2012 Source: WallStreetJournal, “Norway: Embarrassed By Butter Shortage”, (December 19th, 2011), http://blogs.wsj.com/source/2011/12/19/norway-embarrassed-by-butter-shortage/. Accessed on 20th March, 2012 Word Count: 743 Section: 1, Microeconomics The Norwegian Butter Crisis was caused by excess demand and a lack of supply in the Norwegian butter market. Figure 1: Demand & Supply Curves for Butter Figure 1: Demand & Supply Curves for Butter Because of trend for more butter in cooking, and Christmas season Because of trend for more butter in cooking, and Christmas season Supply curve during shortage Supply curve during shortage…show more content…
With butter prices reaching as high as $100 per pound, Norwegian citizens looked to alternative sources for their cherished butter. This created black markets within the country and people began smuggling butter across the borders illegally and selling it to the highest bidders. As Figure 2 shows, because the demand for butter was so high and the supply almost non-existent due to the shortage, those who were able to sell butter, sold it at exorbitant prices that far exceeded the market price. Many creative and intuitive foreigners figured there was much profit to be had selling butter to the Norwegian people for lower prices than what the black market and natural market had to offer in Norway. For example, two Swedes were apprehended with nearly a half-ton (550 lbs.) of butter smuggled across the border from Sweden with an estimated value of about $95per pound; that 's about $52,000 dollars (€ 39,536) of profit. Additionally, the shortage led to long queues of people outside of supermarkets, waiting for their chance to buy butter. Fortunately, Norway represents a happy economic story. Endowed with immense oil wealth, they used the proceeds wisely by establishing a Government Pension Fund to invest in the future. Recognizing the possibility that the value of their currency would soar because

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