One question about economics? Please help. Please give me correct answer. Thanks.?

Question

How might a drought that destroys half of the farm crops be good for farmers? If such a drought is good for farmers, why don't farmers destroy their own crops in the absence of a drought?

Answer 1

Destruction of half a crop shifts the supply curve left, forcing up the equilibrium price. Provided the demand curve is inelastic, the extra revenue from the price increase will be greater than the loss in revenue from the reduction in sales. The net effect is that farmers, as a whole, earn more revenue. They will also save on costs by only having to harvest half the crop.

If one farmer alone destroyed half his crop, he would earn half as much revenue, because the price would not be affected. Only if large numbers of farmers destroyed their crops would the price rise. And the farmers who did not destroy any of their crops would benefit from the price increase as well, more so than the others.

For it to be worthwhile for farmers to destroy their own crops, there has to be some government body with coercive power to make sure that all farmers destroy crops, - that there are no free riders.

Answer 2

If there is a drought that affects all farmers, prices for the remaining crops should rise. If the demand for the crop is fairly inelastic (the demand does not go down significantly as the price goes up) then the farmers might earn more money by selling less because the amount available is so much lower and people are willing to pay more for what is left.

In a good year, farmers do not destroy their own crops because, unless all farmers do this, there will not be a significant drop in the supply, and prices will not change much. The farmers who kept all of their crop will make more money, and the ones who have desroyed their crop will suffer. This is the problem OPEC has controlling prices - when the price goes up, there is an incentive to cheat by producing more and reaping the gains of the higher prices. However, if everyone produces more, the price will drop as the market gets glutted with supply, and none of the producers gain.

Answer 3

The drought wouldn't be good for all farmers. Just those whose crops were not destroyed. By decreasing the quantity supplied of the crop the price would increase. Thus, the farmers who still have a crop would be earning a better price for their goods. The farmers without any crops are SOL. This is why they wouldn't destroy their own crops. If you destroy your own crops you would be raising the market price for the crop but you could not benefit from the increase.

Answer 4

Your question may best be answered by understanding the concept of the "Law of Demand and Supply".

To illustrate, if the aggregate demand for a specific product (ex: corn) is lesser than the aggregate supply meaning there are more supply (of corn) than what the market demanded, the tendency is that the price of corn will be cheaper as there are abundant supply of corn.

On the contrary, if the aggregate demand for corn is greater than the aggregate supply of corn, meaning there is more buyer of corn than the actual market supply of corn, the tendency is that the price of corn will be higher as there is a scarcity of corn.

Now, if a drought, as you say will destroy half of the farm crops (of corn) the supply of corn will definitely dwindle and if the demand for corn does not varies with such limited supply, then the scarcity will result in the drastic increase in the price of corn.
This however, holds true only if the percentage increase in the price will cover the losses of the farmer due to the drought and other operating expense and cost of production, otherwise it will only create a break even.

To conclude, the drought which may result in the drastic increase in price will not generally be good for farmer, but will largely depend on whether the price is far beyond the losses of the farmers ( but remember there are Government Regulatory agency that monitor prices, thus, prices may still be curtailed by such regulatory agency despite the scarcity). So intentionally destroying one's crop may not do good for a farmer as its benefit is purely speculative and much will depend on other factors.

Answer 5

The first part is basic supply and demand. Half the supply is gone, so the existing demand of starving population is willing to pay more for the crops. The farmer is the one who gets a better price for his crop. So he could work less and still possibly make more.

However, there is an equilibrium to S&D. The higher price, especially in a sytem closer to perfect competition like many farmers, is an incentive for each individual to try supply more food, not turn around and destroy it. The sytem is basically hoping you do well, and wish your neighbor doesn't.

If there is a farm monopoly in place, that is exactly what they will do. Except they are likely to not grow a portion of the crop at all instead of destroying part of it.

If it is more a cartel or olygopoly they can agree collectivly to limit crops to raise price. But each individual will have incentive to try supply more. The success would be based on mechanisims to keep individuals inline.

Answer 6

This is simply the effect of the price mechanism theory.
Shortages causes price to rise, and surpluses cause prices to fall (applicable to a free enterprise economy).
Taking note that farm produce is a basic necessity with no substitute, so the price elasticity of basic food is inelastic.

At the same time, there are govt interventions to help farmer make a fair living against the uncertainties and problems that farming faces.Govts provide subsidies to farmers to increase their income or stabilize them, at the expense of tax payers. To keep the incidence of tax revenues ethical, I'm sure that govt bodies will investigate to make sure that the tax revenues are not spent
on fraudulent causes. So, if a farmer destroys her own crops in the absence of drought, this is foul and unethical.

Answer 7

I do not know who that fool is who said drought is good for agriculture. But in old days when fertilization and manuring were not known people followed fallowing, a practice of not growing any crops during a year. This technique helped soils to recoup their fertility status and could support plant life. In these days of modern agriculture fallowing is not required at all. There are fertilizers and manures to augment soil fertility. More over, crop rotation, mixed cropping with leguminous crops help restore soil fertility.
There are other bad effects of drought. Drinking water will be badly hit and the worst sufferers are the domestic animals in the villages. Being Indian and post graduate in agriculture, I know this. Please do not ask or pray for drought in your dream also.

Answer 8

The guy above is right that if the drought destroyed all the farms in that area... that market would be low on supply of crops. Therefore, the demand for them would be higher because there is a shortage. Thus the prices will sky-rocket quite possibly causing farmers to earn even more money than they would of before. However, farmers would not destroy there own crops because they know they wouldn't all be in agreement about it. If all of them want to hike their prices there is going to be one farmer that says hey, I'll just keep all my crops and sell at a slightly lower prices and I'll make a killing!

Answer 9

i dunno