0
$\begingroup$

I'm reading Paul Samuelson's Economics (19th edition, 2009). In page 71, the Paradox of the Bumper Harvest is introduced. According to the paradox, an increase in food supply from a good harvest actually decreases total revenue for farmers. This happens because food is an inelastic good, so demand does not increase with supply in the same rate. If this is the case, why don't farmers refuse to sell excess supply (for example, by burning excess food), to keep prices up?

$\endgroup$
1
  • $\begingroup$ This is why subsidies were created. So that a surplus harvest doesn't lead to a bunch of farmers going out of business, then a famine the next year. $\endgroup$
    – user41743
    Jun 13, 2023 at 22:33

2 Answers 2

2
$\begingroup$

That's because "farmers" as a collective is not a decision maker. Decisions, e.g. on how much food to burn, are made by individual farmers. Now an individual farmer, by her own decision, has only negligible influence on the market price. She simply cannot "keep prices up" on her own. Thus, each individual farmer has a strong incentive not to burn any food but to sell everything she produced. So everybody sells whatever they can, and the market price is low. Sadly for them (but luckily for consumers), the farmers are stuck in a sort of prisoner's dilemma.

$\endgroup$
0
$\begingroup$

why don't farmers refuse to sell excess supply (for example, by burning excess food), to keep prices up?

They do refuse to sell crops when prices are low. In that case, they store1 their crops in silos (in the US and Canada, at least) until commodity prices rise. That's when they sell.

Of course, sometimes prices don't rise, and at some point they have to sell anyway to pay debts due, buy seed for next year, etc.

1Burn?? That stuff cost money to grow. Money that's got to be paid back. Even selling at a loss brings in some money.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.