Free Slides from Ed Dolan’s Econ Blog http://dolanecon.blog spot.com/ Supply and Demand: Will Fracking Enrich India’s Guar Farmers? July 30, 2012 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
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Free Slides from Ed Dolan’s Econ Blog Supply and Demand: Will Fracking Enrich India’s Guar Farmers? July 30, 2012
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Free Slides fromEd Dolan’s Econ Blog
http://dolanecon.blogspot.com/
Supply and Demand:Will Fracking Enrich
India’s Guar Farmers?July 30, 2012
Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics
classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers.
Question: Short-Run vs. Long-Run Market Adjustment
How do you expect long-run adjustment of the guar market to differ from short-run adjustment when there is a permanent shift in demand? (Assume normal growing conditions)
Draw a diagram that shows both short-run and long-run supply curves
Show a rightward shift in the demand curve
Show how the market first moves to a short-run equilibrium E1 and then to long-run equilibrium E2
What happens to the price over time?
P120730 published Aug 1, 2012 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Cotton Ready for HarvestPhoto by Kimberley Vardeman
In the short run, the shift in demand causes the market to move along the short-run supply curve SSR from E0 to E1
In the long-run, expansion of the crop to new growing areas allow the market to move to equilibrium E2 on the more elastic long-run supply curve SLR
Over time, then, the shift in demand causes the price first to rise sharply to P1, and then to fall back partway to an intermediate price like P2
P120730 published Aug 1, 2012 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
The Bottom Line
The bottom line? In the short-run, new demand from fracking will bring prosperity to India’s guar farmers
Over time, high prices will encourage spread of the crop to new areas
The price will moderate. Farmers in favorable growing areas will still earn good profits, but not as high as the short-run windfall profits they enjoyed in 2012
P120730 published Aug 1, 2012 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/