Principles of Economics- Mankiw (5th) 105

Principles of Economics- Mankiw (5th) 105 - CHAPTER 5 E L A...

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CHAPTER 5 ELASTICITY AND ITS APPLICATION 109 use the new hybrid in order to produce and sell more wheat. Yet when all farmers do this, the supply of wheat rises, the price falls, and farmers are worse off. Although this example may at first seem only hypothetical, in fact it helps to explain a major change in the U.S. economy over the past century. Two hundred years ago, most Americans lived on farms. Knowledge about farm methods was sufficiently primitive that most of us had to be farmers to produce enough food. Yet, over time, advances in farm technology increased the amount of food that each farmer could produce. This increase in food supply, together with inelastic food demand, caused farm revenues to fall, which in turn encouraged people to leave farming. A few numbers show the magnitude of this historic change. As recently as 1950, there were 10 million people working on farms in the United States, repre- senting 17 percent of the labor force. In 1998, fewer than 3 million people worked
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