Essay On Tobacco Industry

816 Words4 Pages
Tobacco Prices Graph

The tobacco plant was an extremely lucrative industry during the colonial period because of its highly addictive nature. Tobacco was a valuable commodity that provided a stable income. In fact, tobacco was so valuable that it was used as a form of currency. Despite the increasing demand for tobacco, its price plummeted in the early 1600s. Why did an increase in demand lower the price? Because farmers were able to easily join the tobacco industry and the increase in supply far surpassed the increase in demand. The graph depicts a massive drop in price level, but it does not show changes in demand or supply. The graph is an incomplete story of one of the first successful capitalistic industry during the colonial period.

The tobacco industry was a success story for a competitive market winning against monopolistic prices. Technological innovations, easy entry, and an abundance of land allowed farmers in the colonies to establish massive farmlands dedicated to growing tobacco. The low cost of input and large supply of tobacco crashed its price standards and kept the price of tobacco at a relatively low level.
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I have learned in my economics classes that the competitive market will try to reach equilibrium, and the price will bounce back after a crash. Sellers would leave the market after the crash, the total supply would decrease, and prices would return to a steady level. However, the price of tobacco in the graph continued to decrease instead of bouncing back. This indicated to me that the sellers were not leaving the market. Why weren’t the farmers exiting the tobacco industry? I believe that they did not leave was because that it was still profitable even at lower prices due to its high rate of consumption and
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