Question

In recent years, Vermont has seen an influx of newcomers to maple sugaring, many spurred by higher prices and profits. And that’s been matched by use of more sophisticated technology, experts say. In days gone by, the dairy farmers would often use dairy equipment as they tapped trees and produced syrup. Today, however, Stowe said maple farmers rely on advances in equipment — such as tubing, fittings and vacuum pumps — and advances in science — such as improvements in the reverse osmosis process — that make the entire operation more productive and efficient. Better prices have also helped. In 2007, a gallon of Vermont maple syrup cost an average of $35, according to Department of Agriculture statistics. Syrup from 2009, however, was selling for roughly $43 per gallon, according to a 2010 report by the federal agency. “We’ve seen a lot of expansion the last few years,” Stowe said. “There are new people entering the business and the people already in the business are expanding.”

Question: What, according to the article, are some short-run events in the maple syrup industry and how have they affected the state of the industry in the long run? What do you expect to happen next?

Answer 1

Some short run events that have happened in the Vermont maple industry are-

• Increase in prices from 35 a gallon to 43. Its long term effect is that it will lead to entry of more players in the market as short term profits are high. That will lead to prices again coming down and finally prices will again settle at their natural equilibrium level.
• Improvement in technologies for more efficient production. This will lead to higher productivity and higher supply. In Cobb-Douglas function terms, we can say it will increase the factor productivity.

In the long run, as described the prices will come down again as supply is increasing. Because of more efficient production, the total supply will remain higher but prices would come down back at equilibrium level. In AD-AS terms, we can say that the supply graph will become flatter.