Principles of Economics- Mankiw (5th) 106

Principles of Economics- Mankiw (5th) 106 - 110 PA R T T W...

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110 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK When analyzing the effects of farm technology or farm policy, it is important to keep in mind that what is good for farmers is not necessarily good for society as a whole. Improvement in farm technology can be bad for farmers who become in- creasingly unnecessary, but it is surely good for consumers who pay less for food. Similarly, a policy aimed at reducing the supply of farm products may raise the in- comes of farmers, but it does so at the expense of consumers. WHY DID OPEC FAIL TO KEEP THE PRICE OF OIL HIGH? Many of the most disruptive events for the world’s economies over the past sev- eral decades have originated in the world market for oil. In the 1970s members of the Organization of Petroleum Exporting Countries (OPEC) decided to raise the world price of oil in order to increase their incomes. These countries accomplished this goal by jointly reducing the amount of oil they supplied. From 1973 to 1974, the price of oil (adjusted for overall inflation) rose more than 50 percent. Then, a
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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