Economics Today 18th Edition by Roger LeRoy Miller

تمرين 2

A Drought Suddenly Dries Up a Portion of U.S. Aggregate Supply
Water is a key resource for production of goods and services. Water in the nation's lakes and rivers provides waterways for shipping. When directed into forceful currents, water spins turbines that generate electricity. Water from rivers and streams irrigates farmland. Scenic lakefront and riverfront views also attract tourists to restaurants and hotels in many locales. Much of the country has experienced a sharp drought. Pete Clark, co-owner of Carlos' n Charlie's, a restaurant located next to Lake Travis in Austin, Texas, has depended on water as a tourist attraction. Lake Travis is at 33 percent of its capacity, and tourists are not attracted by a mostly empty lakebed. "We hung in there for the first bad year, the second bad year, and now the third bad year," Clark says, "and we knew if we hung on for a fourth, we would create a financial hole we couldn't dig out of." Clark's business closure is one of many nationwide related to the drought. Farms lacking water for irrigation are cutting production.
Power companies are shifting away from water to more costly sources of power for electrical turbines. For a time, shipping routes disappeared in the Great Lakes and along rivers flowing from those lakes as water levels dropped too low to support craft carrying freight. In short, the reduction in water resources available for use reduced the nation's short-run aggregate supply, thereby generating an aggregate supply shock.
Ceteris paribus, what is the effect of the drought on the equilibrium price level? Sources are listed at the end of this chapter.