Stubborn+drought+expected+to+tax+Mexico+for+years+by+Siao+En+Tan

//**REMEMBER: DO NOT SUMMARIZE THE ARTICLE!!!**//

=TITLE OF EXTRACT:= Stubborn drought expected to tax Mexico for years

=SOURCE:= http://www.vision.org/visionmedia/article.aspx?id=53967

=DATE EXTRACT WAS WRITTEN:= March 21, 2012

=DATE CURRENT EVENT WAS WRITTEN:= March 26, 2012

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= A recent drought has caused the Mexican famers to lose billions of dollars. This tragedy had started months ago, killing most of the livestocks that Mexico have. The weather of Mexico has caused the PPC to move inwards because natural disaster has decreased the possibility of production in the Mexican economy. By this, it means that the drought has affected the potential of the total output of goods ands services that the market can produce to a lesser extent. When there is a decrease in supply of crops and livestock, it will cause prices to go up per unit of good and service. According the the law of demand, when there is an increase in price of a good or service, the quantity demanded will decrease. The market of Mexico is undergoing such theory and is in short of the supply for water and food causing a price increase and a decrease in quantity demanded. The government had placed a subsidy of $2.65 billion to relieve the effects of the drought. The subsidy is meant to help Mexico with the water and food shortage that will aid the market in farming by producing more funds to aid the process farming.

=VOCABULARY TERMS AND DEFINITIONS:= =DIAGRAMS:=
 * PPC (production possibility curve): shows the potential output of an economy when it is given a certain time period and all of the resources in the economy are used fully and efficiently in a condition where the state of technology is fixed.
 * Total Output: The total value of goods and services that an economy produces.
 * Supply: relates to producers who produce goods and services for consumers
 * Demand: relates to consumers who buy goods and services from producers.
 * Law of Demand: quantity demanded decreases as price increases.
 * Subsidy: amount of money paid by the government to a firm per unit of output.
 * Opportunity Cost: the next best alternative foregone when an economic decision is made.

=EVALUATION:= The government has already stepped in to aid the economy of food and water production by placing a subsidy in the production process. However, a subsidy in the case of drought would not help the economy in long term because a government does not have the ability to provide help to the market in long term since nobody knows when this natural disaster is going to end. Also, by having the government place a subsidy on the production process to increase the supply, they are losing an opportunity cost at the same time. The opportunity cost could be the production of capital goods or even increasing the living standards of citizens in Mexico. A long term solution to the problem of drought would be to wait for the weather to turn back to normal. During the period of drought it is best to conserve as much energy as possible maybe even start to place small amount of tax on water to encourage the act of conservation. By placing a tax on water will not affect the ability of farmers to produce crops because the government has placed a subsidy on water for farmers who are in charge of producing livestocks and crops. Thus, it will not affect the total output that will be produced by placing a tax on water. Instead, it will only encourage citizens to use water in a minimal level at the same time conserve water.