108PART TWOSUPPLY AND DEMAND I: HOW MARKETS WORKTHREE APPLICATIONS OF SUPPLY,DEMAND, AND ELASTICITYCan good news for farming be bad news for farmers? Why did the Organization ofPetroleum Exporting Countries (OPEC) fail to keep the price of oil high? Doesdrug interdiction increase or decrease drug-related crime? At first, these questionsmight seem to have little in common. Yet all three questions are about markets,and all markets are subject to the forces of supply and demand. Here we apply theversatile tools of supply, demand, and elasticity to answer these seemingly com-plex questions.CAN GOOD NEWS FOR FARMING BEBAD NEWS FOR FARMERS?Let’s now return to the question posed at the beginning of this chapter: What hap-pens to wheat farmers and the market for wheat when university agronomists dis-cover a new wheat hybrid that is more productive than existing varieties? Recallfrom Chapter 4 that we answer such questions in three steps. First, we examinewhether the supply curve or demand curve shifts. Second, we consider which di-
This is the end of the preview.
access the rest of the document.