Overview
This lecture focuses on the economic challenges faced by U.S. farmers in the 1920s, especially during Warren G. Harding’s presidency, and explains agricultural price changes using supply and demand models.
Economic Challenges for Farmers in the 1920s
- U.S. farmers, especially small ones, suffered economically throughout the 1920s.
- Technological advances like gasoline-powered tractors increased farm productivity, pushing prices down.
- During World War I, European demand for U.S. food was high due to destroyed local farms.
- After World War I, European farm recovery increased global food supply and lowered world food prices.
- Rising foreign tariffs further reduced prices U.S. farmers could get for exports.
Supply and Demand with International Trade
- The supply and demand model is used to illustrate agricultural trade impacts (domestic supply and demand curves).
- Without international trade, equilibrium price and quantity are set by domestic forces.
- With high world prices during WWI, the U.S. exported the surplus of domestic production over domestic consumption.
- After WWI, the world price of food fell, causing U.S. production and exports to decrease.
- Lower world prices led to reduced producer surplus (farmers worse off).
- U.S. domestic buyers/consumers benefited from lower food prices, increasing consumer surplus.
- Urban dwellers enjoyed lower food costs and new technology (radios, refrigerators, indoor plumbing).
- Total exports (X) from the U.S. declined due to price changes.
- Total surplus (overall economic welfare from trade) in U.S. society also fell.
Key Terms & Definitions
- Producer Surplus — The benefit producers (farmers) receive from selling at a market price higher than their minimum acceptable price.
- Consumer Surplus — The benefit consumers receive when they pay less for a good than the maximum they are willing to pay.
- Total Surplus — The sum of producer and consumer surplus; measures net societal gains from market transactions.
- Exports (X) — Goods produced domestically and sold abroad.
- Tariff — A tax on imported (or exported) goods, used here by foreign countries against U.S. food exports.
Action Items / Next Steps
- Review Appendix 5 on international trade models for a better understanding of supply and demand changes.
- Practice identifying producer and consumer surplus areas on supply and demand graphs.