This lesson examines the current state of drought in the United States and the economic impact of drought on local communities.
- Understand why specialization leads to interdependence.
- Determine the economic impact of drought on a local economy.
As necessary, introduce the concepts of specialization and interdependence. Specialization is a situation in which people produce a narrower range of goods and services than they consume, which increases productivity. Interdependence is a situation in which decisions made by one person affect decisions made by other people, or events in one sector of the economy affect other sectors of the economy (EconEdLink Glossary). When people specialize, they do not try to provide for all their economic wants themselves; instead, for some wants, they depend on others. This is the basis of interdependence.
Water is a natural resource that is essential in the production of many goods and services. The United States has been experiencing drought conditions in various parts of the country for several years. Drought can affect local communities in a number of ways. Students participating in this lesson will learn about interdependence in a local community and see some ways in which interdependence can adversely affect the community when a drought occurs.
- EconEdLink Glossary: Students can use this glossary to look up terms used in this lesson.
- Interdependence Activity: Students will complete this interactive activity to learn about lost income or revenue.
- Drought Conditions Map: See a map of current drought conditions in the United States
Direct the students to examine current drought conditions by looking at the drought monitor map (see resources). Ask the students whether their state is in any kind of a drought condition. If it is not, have the students look at states that are experiencing drought; where they find instances of drought, they should note the level of severity. Ask the students what percentage of the entire U.S. is in some degree of drought condition (answers vary over time as the level of drought changes).
The students then examine a hypothetical farming community called Bonedry. Bonedry has been in a severe agricultural drought for several years. The students' task will be to calculate the economic impact of the drought for the town, using the information summarized below.
Bonedry once was home to 50 farmers, with an average farm-family income of $75,000 annually. Farmers are entrepreneurs; they operate their farms in expectation of making a profit, and they run the risk of not making any profit in certain years. The recent lack of moisture in Bonedry has reduced crop yields and profits from those crops. As a result, 10 of these farmers have left the area. The local farm implement company experienced a decrease in sales of 10% (annual sales had been $1.5 million). Due to the decrease in sales, the farm implement company cut one employee who had earned an annual salary of $40,000. Due to the decreased population, the local grocery store saw a decrease in sales of 8% (annual sales had been $900,000) and local restaurants experienced a 15 percent drop in revenues (annual revenues had been $500,000). Because of the decrease in sales of goods and services, Bonedry received 19 percent less in sales-tax revenues, which had been $420,000 annually. This loss of tax revenue caused the town to cut two police officers, each of whom each had earned annual salaries of $38,000. Based on the above information, students should fill in the amount of lost income or revenue in each of the boxes in the attached interdependence activity.
Farmers depend on rain to grow their crops.
Loss of farm income (10 farmers x $75,000 = $750,000)
Farm implement companies depend on farmers to buy their products.
Loss of sales revenue for the implement company ($1,500,000 x .10 = $150,000)
Employees at the farm implement company depend on the company for their wages.
Loss of employee wages ($40,000)
The local grocery store and local restaurants depend on the local population to buy their goods and services.
Loss of sales revenue for the grocery store ($900,000 x .08 = $72,000)
Loss of revenue for local restaurants ($75,000)
The city government of Bonedry depends on sales tax revenues to provide city services
Loss of city sales tax revenue ($420,000 x .19) = $79,800)
Local police officers depend on the city to pay their salaries.
Loss of police officer income ($38,000 x 2 = $76,000)
Total annual dollar impact for Bonedry ($1,242,800)
[NOTE: Teachers might point out that this is a very simplistic example and call upon students to think of other businesses or sectors of the town that would also be affected. For example, if 10 farm families left town, their children would also leave. This might mean the local schools would need fewer teachers and would let some teachers go. In addition, a declining population would affect retail stores. These businesses would also see a drop in sales revenue.]
Based on the interdependence activity above, have students construct an interdependence chart for your own city or area (but without dollar amounts) showing different businesses or organizations that would be affected by a drought. The students should show as many organizations or groups of people who might be affected as possible.
Have students consider the following questions:
- Why does a drought have broad effects in addition to its effects on farmers and other agricultural industries? [Droughts have broad effects because of the interdependence among different sectors of the economy. Specialization means that we do what we do best and must trade with others to get the goods we need. This always leads to interdependence. Businesses are in business to earn profits. These profits are used to buy goods and serviced produced by other businesses. If farmers have less profit, there will be less profit for other businesses as well.]
- What other sectors in addition to agriculture might be hardest hit by a drought? [Possibilities include recreation, such as fishing and water sports, camping (in extreme drought conditions, state and federal parks are often closed to campers to avoid potential wildfires). Also, if water is rationed, businesses that directly rely on water (such as car washes) will be severely affected. But reiterate the point that probably all businesses and people in a drought area will be affected to some extent.]
- How might drought affect urban areas? [Urban areas are also affected by drought because many business sectors--manufacturing and construction, for example--rely on water. Many cities throughout the U.S. have experienced water rationing in recent years and this affects the whole economy.]
Go back to the drought monitor and have the students determine how many states or what percentage of states are in some state of drought at the present time. The students could update this percentage over time to see if it changes from month to month. In addition, the students could calculate which states have the highest drought levels as a percentage of total state area. After the students have studied these maps, they can access the state links at the Drought Conditions Map . These state links show how each state monitors drought in the state and, in some cases, how the states are responding to droughts or potential droughts. The students should understand that droughts affects many sectors of the economy in affected states, which is why states try to minimize the effect.
Here is a list of questions for the students to answer after they refer to the drought monitor.
- How many states are in some type of drought condition at the present time?
- What percentage of the total United States does this represent?
- What state appears to have the worst drought condition at the present time?
- What percentage of this state's land area is considered to be in a drought?
- For this state, what do you think the economic impact from the drought will be?
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