1 did banning ddt devastate cotton farmers in the mid-1970s? ddt kills boll weevils september, 1962...
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Did Banning DDT Devastate Cotton Farmers in the mid-1970s?
DDT kills Boll Weevils
September, 1962
EPA banned DDT beginning
in 1973
protects
& Bald Eagles
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Market for Cotton, 72-74
QCotton
PCotton
S72
D72
P72
Q72
S74
Q74
P74
Banning DDT
causeda derease in
supply
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Political Scientist Aaron Wildavsky argues:
71 72 73 74 750
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2
3
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5
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Cotton Production, 71-75
Q (
bill
ion
s o
f lb
s)
Q
DDT Ban
“cotton crash”
“Devastated” cotton farmers
71 72 73 74 750
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3
4
5
6
7
0
0.1
0.2
0.3
0.4
0.5
0.6
Cotton Q and P, 71-75
Q (
bill
ion
s o
f lb
s)
P (
$ p
er lb
)Q
P
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Cotton Price and Quantity
Cotton Harvest Cotton Price
Year (billions of lbs) ($ per lb)
1972
1974
Cotton Harvest Cotton Price
Year (billions of lbs) ($ per lb)
1972 6.58 0.27
1974 5.54 0.43
Sources: National Cotton Council of America & US Dept. of Agriculture
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Two Effects of DDT Ban on Farmers’ Income:
1. Income by Q
2. Income by P
Net Effect Depends on the Price
Elasticity of Demand (ed )
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Price Elasticity of Demand, ed
ed measures the responsiveness of the quantity (of cotton) demanded to a change in cotton’s (own) price, ceteris paribus.
ed =
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Computing ed using the “Arc Formula”
ed =_____________________=
Elasticity is dimensionless (units cancel out).
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Quantity (billions of lbs
per year)
Price ($ / lb)
5.54
.27
.43
D
Originalpoint
Newpoint
∆P = .16
∆Q = −1.04
Pavg =.34
Qavg = 6.066.58
Calculating the ed of Cotton
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Calculating ed
Quantity (billions of lbs
per year)
Price ($ / lb)
5.54 6.58
.27
.43
D
= − 0.36 47 % in P
17 % in Q
ed =
=causes
Pavg =.34 ∆P = .16
∆Q = −1.04
Qavg = 6.06
=
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Calculating ed
• Note that ed is always negative (or zero) because of the law of demand.
• However, when discussing the value of ed , economists almost always use the absolute value. Using | ed |, a larger value means greater elasticity.
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Definitions—Inelastic & Elastic
0 1∞
0 < | ed | < 1 | ed | > 1
perfectly inelastic| ed | = 0
perfectly elastic| ed | = ∞
elasticinelastic
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ed and Total Revenue (TR)
TR72=$0.27 per lb *6.58 bil. lbs= $1.78 billion = B + C
TR74 = $2.38 billion = A + B
A
B C
if | ed | < 1
then↑ P ↑ TR
Q74 Q725.54 6.58
P72=0.27
P74=0.43
D Quantity (billions of lbs
per year)
Price ($ / lb)
72
74
= $600 million= $0.60 billion∆TR = A − C
| ed | = .36 D is inelastic
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ed & Total Revenue
0 1∞
0 < | ed | < 1 | ed | > 1
elasticDemand is …
P causes… TR TR
inelastic
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“The economics of coal revolved around two factors: most of the cost of production was wages for miners, and if the supply fell the price would shoot up because in an age before oil and electricity, there were no good substitutes. Profits were low in 1902 because of an over supply; therefore the owners welcomed a moderately long strike. They had huge stockpiles which grew in value daily. It was illegal for the owners to conspire to shut down production, but not so if the miners went on strike. The owners welcomed the strike, but they adamantly refused to recognize the union, for then it would control the coal industry.”
http://en.wikipedia.org/wiki/Coal_Strike_of_1902
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What is ed for Cigarettes?
• “Economic studies have suggested that a price increase of 10 percent reduces smoking about 4 percent”
• ed =%∆Qd
%∆Pcig
Hence, studies Demand for cig is inelastic
= −0.40=-4
10
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Premium Cig (PC) and Discount Cig (DC)
Analysts predicted 10% ↓ in Q of PC demanded.
Why | ed PC| = 0.60 > | ed
Cig| = 0.40?
−0.60= = =
In 1998, PPC ↑ from $2.45 to $2.90 per pack while the PDC = $1.50.
What is the analyst’s estimate of ed PC?
ed PC =
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Determinants Of Elasticity
1. Number of Substitutes
Demand for premium cigsExample:
Demand will be more elastic as the number of substitutes increases
| eCamels | | ePC
| | eAll Cigs| > >
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Fetal Heart Rate and Uterine Contractions
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Determinants of Elasticity
2. Necessities versus Luxuries
Demand for necessities tend to be inelastic
Market for At-Need Epidural Blocks (EB) PEB
QEB
D Very Nearly
perfectly inelastic
Gardasil: vaccine (for pre-teen girls) against (HPV) virus that causes cervical cancer. The price charged by Merck & Co. is $360. (Wikipedia)
“Anti-Cancer Vaccine A Tough Sell To Parents”
National Public Radio, Thursday, September 18, 2008
“As of late 2007, just one in five American girls under the age of 18 had received shots for HPV.”
Reasons for Low %:
1) Parents doubt that their child is sexually active.
2) Mistrust of vaccines
3) Price…“cost is a major obstacle if the girl is not covered by insurance”
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Determinants Of Elasticity
| eGardasil | | eGardasil
|
>Poor HHs Non-Poor HHs
3. Proportion of the Budget
Goods that are a small % of peoples’ budgets tend to have inelastic demands (e.g., salt)
4. Time Frame
| eReal Skeletons | | eReal Skeletons
|Long-Run Short-Run
India banned skeleton exports in 85
>
Internal
External
250GB Hard Drives
Western Digital (WD) Seagate
“My Book” “FreeAgent”
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The Demand for WD Drives
WD’s External Drive
P
Q
$100
Q1
WD’s Internal Drive
P
Q
$75
Q1
D D
Nearly…Perfectly Elastic
Less than perfectly elastic
East Coast in Jan 05 Snow Storms Hit
e = = 0.62
INELASTIC
1-month snowfall a 113-year high
January 27, 2005
Boston Snowfall (inches)
Price of Salt in Boston($ / ton)
Quantity of Salt in US (millions
tons / year)
2004 39.4 32 16
2005 86.6 46 20
2/)PP()PP(
2/)QQ()QQ(
0405
0405
0405
0405
2/)2374(
)3247(
2/)1620(
)1620(
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Elasticity of …
D05
P05
Q05Q04
$46
16
=S05
P04$32
S04
D04
QRS
PRS
Market for Road Salt, 2004-2005
Supply
20
($ per ton)
(millions tons / yr)
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Elasticity of Supply
P05
Q05Q04
$46
=S05
P04$32
S04
QRS
PRS
Market for Road Salt, 2004-2005
16 20 (millions tons / yr)
($ per ton)
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Income Elasticity of Demand, ey
• If ey > 0, then good is a normal
good.
• If ey < 0, then good is an inferior
good.
%∆D___________________
%∆Yey =
30
Table 1. Income and Garbage, 1960-2000
Garbage CollectedMean Family
Income
(lbs per capita ) (thousand of real $)
1960 1000 301970 1200 411980 1350 421990 1650 492000 1700 57
Sources: Environmental Protection Agency, Municipal Solid Waste in the United States,2007; www.demographia.com/db-lg-hhld.htm
↑ Income ↑ Garbage Collection?
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Garage Collected (lbs per capita)
Average Family Income (thousands of real $)
1960
2000
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Income%
)Collection Garbagefor Demand(%
Income Elasticity of
Demand for Garbage Collection
=
≈ ____________________
2/)3057(3057
2/)10001700(10001700
=
= 0.84
Income Elasticity of Demand, ey
From Fullerton & Kinnaman (2000),
ey = 33.0Y%
D%
Garbage removal is a normal good.
ey = 84.0Y%
D%
Our estimate,
Income Elasticity of Demand, ey
QGC (lbs per capita)
PGC
D2007
P2007
1800
S
%∆Y = -9%
Substituting,
33.09%
D%
Solving,
%3D%
Last Severe Recession (early 80s)
Predicted ∆ Demand if same ∆ Income Occurs Today using F&K’s ey
%3GC%
D2009
1800 of %3lbs54
lbs54
lbs54 thanless
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Cross-Price Elasticity of D, ex,z
ex,z measures ∆ demand for a good caused by a ∆ price of another good, ceteris paribus.
ex,z =%∆DX
%∆PZ
eX,Z > 0 X & Z are substitutes (e.g., heroin and marijuana)
eX,Z < 0 X & Z are complements (e.g, graves and caskets are complements
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Not Surprising…
In 1969, US Army launched “an all-out campaign” against marijuana suppliers in Vietnam.
DH PM
%∆DH
%∆PM
Suppose eHeroin,Marijuana > 0
to an Economist
In 1972, thousands of US soldiers were using heroin daily.
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Market for HPV Vaccine, 2010
Source: National Health Interview Survey, 2010
A B
C
Sample of 14-17 year old girls
1872 2485 3074
Current Situation
If doctor recHPV Vaccine
If doctor rec HPV Vaccine
Price($ per vaccine)
Quantity
Zero price
&
D
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Market for HPV Vaccine, 2010
Source: National Health Interview Survey, 2010
A B
C
Sample of 14-17 year old girls
1872 2485 3074
Current Situation
If doctor recHPV Vaccine
If doctor rec HPV Vaccine
Price($ per vaccine)
Quantity
Zero price
&