Free Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Afghan Opium Blight: Strategic Implications of Elasti...
Blight Strikes Afghan Opium Crop <ul><li>In 2010, a blight has hit the Afghan opium poppy crop (and possibly the crop in o...
Elasticity of Demand for Opium <ul><li>We can start by using the midpoint formula to calculate the approximate elasticity ...
Effect of the Blight on Revenue <ul><li>When demand is inelastic, a decrease in quantity causes total revenue to increase ...
Who Holds the Opium Stocks? <ul><li>In reality, most of the increased revenue may not go to farmers, but instead to Taliba...
The Law of Unintended Consequences <ul><li>Early in the Afghan war, NATO troops used chemical sprays to try to eradicate p...
Upcoming SlideShare
Loading in …5
×

Afghan opium blight strategic implications of elasticity

1,171 views

Published on

Published in: Economy & Finance, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,171
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
14
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Afghan opium blight strategic implications of elasticity

  1. Free Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Afghan Opium Blight: Strategic Implications of Elasticity Posting prepared May 13, 2010 Terms of Use: You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers. Check it out at http://www.bvtpublishing.com/disciplines.php?Economics
  2. Blight Strikes Afghan Opium Crop <ul><li>In 2010, a blight has hit the Afghan opium poppy crop (and possibly the crop in other Asian countries) </li></ul><ul><li>Since opium is an important source of revenue for the Taliban insurgency, the blight might at first seem helpful to the Afghan government and its NATO allies </li></ul><ul><li>However, economic analysis suggests that the blight may be a mixed blessing </li></ul>Posting P100513 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Opium Poppies Source: PDClipart.com
  3. Elasticity of Demand for Opium <ul><li>We can start by using the midpoint formula to calculate the approximate elasticity of demand for opium </li></ul><ul><li>The UN estimates that the blight has reduced the 2010 opium crop by 33% and driven up prices by 57% </li></ul><ul><li>Using an index of 100 for the base-year value of price and quantity, this implies an approximate elasticity of demand of -.89 (inelastic demand) </li></ul>Posting P100513 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
  4. Effect of the Blight on Revenue <ul><li>When demand is inelastic, a decrease in quantity causes total revenue to increase </li></ul><ul><li>Example: A farmer who earned $10,000 in 2009 growing 100 kilos of opium at $100 a kilo would earn $10,519 in 2010 by growing 67 kilos at $157 a kilo </li></ul>Posting P100513 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
  5. Who Holds the Opium Stocks? <ul><li>In reality, most of the increased revenue may not go to farmers, but instead to Taliban middlemen, who are believed to hold large stocks of previously produced opium </li></ul><ul><li>On balance, then, the effects of the reduced opium crop work against the strategic interests of NATO forces fighting the Taliban </li></ul>Posting P100513 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
  6. The Law of Unintended Consequences <ul><li>Early in the Afghan war, NATO troops used chemical sprays to try to eradicate poppy crops </li></ul><ul><li>The results: </li></ul><ul><ul><li>A sharp spike in poppy prices, similar to that caused by the blight </li></ul></ul><ul><ul><li>An increase, not a decrease in funds available to the Taliban </li></ul></ul><ul><ul><li>Anger among farmers, who lost their crops while middlemen earned windfall profits on opium stocks </li></ul></ul><ul><li>Having learned a lesson from the law of unintended consequences , NATO has abandoned eradication </li></ul>Posting P100513 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that pol­icy not merely for one group but for all groups. — Henry Hazlitt Economics in One Lesson (1946)

×