Cotton Triple
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What happens if an unskilled worker in a poor-cotton growing region must choose between?
between working in a factory for $6000 a year and being a tenant cotton farmer. One farmer can work a 120-acre farm, which rents for $10,000 a year. Such farms yield $20,000 worth of Cotton each year. The total non labor cost of producing and marketing the cotton is $4,000 a year. A local politician whose motto is working people come first has promised that if he is elected, his administration will fund a fertilizer, irrigation and marketing scheme that will triple cotton yields on tenant farms at no charge to tenant farmers. If the market price of cotton would be unaffected by this policy and no new jobs would be created in the cotton-growing industry, how would the project affect the incomes of tenant farmers in the the short run and the long run?
How would the project affect the income of the tenant farmer in the short run and in the long run?
Who would reap the benefits.
Before the project, there is no opportunity cost for choosing factory work or tenant farming. The factory worker would make $6000 a year. The tenant farmer would make $20,000 for cotton, less $10,000 rent, less other costs of $4,000, for a net of $6,000.
After the project, the factory worker still makes $6000. The tenant farmer makes $60,000, less the same total costs of $14,000, for a net of $46,000. This would increase his income by $40,000. With no new cotton jobs available, the factory worker cannot take advantage of this; the tenant farmer gains and the factory worker does not. There will be a surplus of people wishing to be tenant farmers as opposed to factory workers, but no new jobs will be created. The supply of tenant farmers will be greater than the demand for tenant farmers. This is the short run outcome.
In the long run, with a fixed number of jobs, the only variable is the $10,000 rent. This rent can be increased in order to take advantage of the surplus of potential tenant farmers; as the rent is increased, the $40,000 increase in income will be reduced, reducing the surplus of workers. This rent can be increased up to the point where no surplus exists; new long run equilibrium will be $50,000 rent, with the tenant farmer back to making a net of $6000. This will again eliminate opportunity costs. The net result in the long run is that the landowners make a fortune off of the new yields, while the tenant farmer makes nothing more than before. This policy of "working people come first" will only help the landowners, not the workers.
So in the short run, the tenant farmer will benefit, but in the long run only the landowner will benefit.
Of course, this is only hypothetical and cannot be exactly duplicated in real life. Nobody can triple the cotton yield without affecting the price of cotton, and at least some new jobs would be created.
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