The southern United States is in the midst of a severe drought. Texas has suffer

Question

The southern United States is in the midst of a severe drought. Texas has suffered estimated crop and livestock losses opf $7.62 billion since 2010 (ehwn the drought began). These losses have largely stemmed from lack of water needed to maintain cattle stocks. Ranchers have thereby been compelled to sell off much of their herds for slaughter.

A. What was the immediate effect of the drought on the equilibrium price and quantity of beef in the United States?

B. Beef prices were at record highs during the summer of 2014. In light of your answers to Part A, provide a justification for this observation.

Explanation / Answer

A. What was the immediate effect of the drought on the equilibrium price and quantity of beef in the United States?

In the summer of 2010, the prices rose some but the full effect was not realized or seen until after summer had past and the drought created a shortage of supply in the coming months. The prices rose because of a lower supply of beef as well as farmers having to raise their prices due to lower yields per pound of cattle and also due to spending extra on irragation, wells, etc.

B. Beef prices were at record highs during the summer of 2014. In light of your answers to Part A, provide a justification for this observation.

A little bit of this can still be the after effects of the drought from 2010. However, the real affect is a result of the combination of years since 2010. Because of the draught and not having money to irrigate or buy hay that was usually grown but did not because of the draught, farmers had to sell cattle that they normally would not have done so. By selling early, the cattle had not reached full size yet and resulted in less beef as well as less income for the farmers. With less income, farmers did not have fund to invest back into their business the following year for feed, immunizations, irrigation, etc. As a result, this has caused and on-going ripple effect.

Also, part of the water problem is due to a lack of rain, however the drilling of oil (fracking) has also used up a lot of the water supply in Texas and adjacent states which has compounded the shortage problem. As the supply and demand curve demonstrates, when resources are scarce, cost for farmers rise while supply also dwindles. This carries through in the form of higher prices to the consumer.

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