Baby Formula Crisis!

Events leading up to the current baby formula crisis is summarized in the CNBC video released on June 15^th 2022:

• In February 2022, the baby formula company, Abbott Nutrition, recalled and shut down its Michigan manufacturing plant – that produced 25% the nation’s supply – due to bacteria discovered at this site that led to the deaths of two infants,
• By early May 2022, 43% of baby formula was out of stock in the country,
• Other causes include
  • restricted import regulations – 17.5% tariffs – on baby formula production since 98% of the baby formula supply is from four local companies, and
  • about 50% of baby formula supply in the nation is allocated to low-income families through the federal Women, Infants and Children Program (WIC).
• Consequently, hoarding and price gouging has occurred as (non-WIC) parents drive miles and search on the internet for availability of cans of baby formula.
• The White House has invoked the Defense Production Act requiring baby formula companies to prioritize the production of baby formula while the Food & Drug Administration has relaxed import regulations to allow shipments from Europe.

Discussion Questions:

1. Based on the CNBC video,
   • is the current baby formula crisis a case of “scarcity” or “shortage”? Do explain your choice.
   • which two determinants of supply do you think were the key causes of the baby formula crisis leading to a shift in the supply curve to the left and a rise in baby formula prices? (view slide four as a recap)
   • regardless of being in the WIC program or not, does the pursuit of the one parents’ self-interest in getting the last can of infant formula help or hurt the social interest (or the unintended benefit or cost of self-interest) of the families with infants around this family?
     
2. Would you classify baby formula as a “natural” resource or “man-made” resource?
   Do explain your choice.
3. Self-reflection: Reflect about ONE resource that is currently affecting your daily life. Then
   • indicate the resource,
   • explain how does the scarcity of your chosen resource affect your daily life?
   • explain how are you using your rational self-interest to determine the demand for this resource?

Sources| CNBC: What led to the baby formula shortage – and how officials are trying to prevent to prevent it from happening again; Slideplayer: Determinants of supply; Marketing91: Types of resources; WealthHow: The major difference between scarcity and shortage in economics; Investopedia: Self-interest; Unsplash.com: A baby drinking milk