South-Western College Publishing - Economics  
Warmer Winter Helps the Little Guy, and Also Helps the Big Nation
Topic Supply and Demand
Key Words heat, weather, changes in demand, changes in supply.
Full Article

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Reference ID: A157496351

News Story The warm weather we've been experiencing this season has significant repercussions across the economy, from allowing those with low incomes a little more to spend on other goods, to increasing uncertainty regarding our nation's agricultural production.

On one hand, the reduced demand for fuel oil has pushed down the price of crude oil. This resonates throughout the economy, as price of heating falls right alongside the price of gasoline. The warmer weather also has a tendency to reduce mortality, as individuals respond better to non-extreme forms of weather. Finally, industries such as home construction see better days with warmer weather, as those companies can continue to work throughout the year.

Whether this is good for our nation's agriculture has yet to be determined. Warm winters are good for plants that last year-round, such as cherry and apple trees. But warmer winters also change the probability of having late frosts, which could damage flower blooms already present on those trees. Warm, wet winters also have a tendency to delay the planting of crops such as corn, because the land needs to dry out before planting. A delay in planting could reduce the overall crop yield, which would raise prices at the store.

Some behavioral finance and economics professors have tried to determine if there is an effect from the weather on stock prices. So far they haven't found a link; except to say that if someone is grumpy because of the weather, and that person controls significant amounts of money in stocks, look out! Weather may have an even greater impact on us than we may think.

Discussion Questions:
1. The article noted that the price of gasoline should fall as the price of fuel oil falls. Why would this happen?
2. Do you think there would be a link between weather and stock prices? Are the behavioral economists chasing windmills? Why or why not?
Multiple Choice/True False Questions:
1. According to the article, why is the price of fuel oil falling?
  1. Demand is rising.
  2. Demand is falling.
  3. Supply is rising.
  4. Supply is falling.
2. According to the article, what would happen to the price of apples if there is an early frost?
  1. Price would rise, because supply fell.
  2. Price would rise, because supply rose.
  3. Price would fall, because supply fell.
  4. Price would fall, because supply rose.
3. According to the article, what should happen to the price of new home construction under a warm winter?
  1. It should rise because of increased supply.
  2. It should fall because of increased supply.
  3. It should rise because of increased demand.
  4. It should fall because of increased demand.
Source Altman, Daniel. "A Tepid Winter Warms Some Wallets." The New York Times. January 14, 2007.
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