Friday, September 29, 2006

The Potato Cartel?

Greg mankiw shows how Potato farmers are restricting supply of their crop by......destroying it

Also note his update. They don't understand basic supply and demand! The correct explanation is that by destroying the crop they are shifting the supply curve to the left. This in turn lowers output and creates a shortage. The price level is increased and the Quantity demand decreases as a result until the new equilibrium is reached!

Do you see the importance of these words now?

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