South-Western College Publishing - Economics  
Pecan Buyers to Shell Out More
Subject Demand, Supply, and Equilibrium
Topic Supply and Demand
Key Words Supply, Price
News Story

The supply of pecans is threatened by the peculiar weather that has hit Texas and other states over recent months. There was a severe drought in the summer followed by flooding. The heat prevented nuts in some areas from maturing. Some growers were harvesting as the water rose, and lost part of the crop, together with some of their equipment. A crop of 40 million pounds had been forecast in Texas, but 35 million pounds is more likely. In Georgia, the pecan harvest is expected to be down 45 percent, to 60 million pounds.

To offset this, distributors have been buying pecans from other states and Mexico. Producers are also releasing pecans that had been kept in cold storage since the bumper crop in 1997. As a result, the effect of the weather on the supply of nuts may be less than feared. The price of a pound of shelled pecan meat is expected to rise from $4.50 to $5 last year to $5 to $6 this year.

(Updated February 1, 1999)

Questions
1. a) Draw a diagram with axes representing the price and quantity of pecans. Show the supply curve. What does the curve represent?
  b) On your diagram, show the effects of the heat and floods on the supply curve. What happened to the amount that producers are willing to supply at each price?
  c) On the same diagram, show the further effect of the loss of equipment (which can be seen as increasing the cost of production). What happened to the price at which pecan producers are willing to supply a particular amount of pecans? Why?
2. a) Why did the producers reduce their supply of pecans in 1997 in order to sell them in a later year? Think in terms of the determinants of supply?
  b) What is the implication for the supply of pecans in 1998? Illustrate on another diagram of the supply of pecans.
3. a) Importing pecans from Mexico is similar to increasing the number of producers in the market. What is the effect on the supply curve for pecans?
  b) Is this a change in supply or a change in quantity supplied? Explain.
Source Associated Press, "Pecan Crops Suffer, But Nuts Abound For Holiday Treats", The Wall Street Journal", November 30, 1998.

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