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Explain who the stakeholders are.

Who wins and who loses?

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Discuss any market failures, unintended consequences, or information imperfections relevant to your topic.

Explain how these factors challenge or modify the predictions of the standard equilibrium model.

Discuss potential unintended consequences, externalities, market power, or reasons the standard market equilibrium model may not be applicable.

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Summarize the positive (descriptive) and normative (value-based) analysis of the policy or situation.

Present a reasoned conclusion on the policy's effectiveness, considering efficiency, equity, winners and losers, etc.

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Identify and explain relevant economic concepts.

Describe how the topic ties into class economic principles.

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Introduce the chosen topic.

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Use a graphic to visually demonstrate the standard equilibrium model's application to your topic.

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Wildfires have increased in intensity and frequency in California, specifically in the Palisades and Los Ange area

﻿﻿Substantial damage has been caused to agricultural production

﻿﻿﻿﻿Livelihoods of farmers and nationwide food supply chains have been threatened

﻿﻿Disturbances in agricultural markets have significantly impacted everyone

﻿﻿Equilibrium theory study highlights need for government involvement

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Impact of farm fires on farmers and consumers

Farmers

Significant financial and psychological losses

Particularly affects those in urban area and from underprivileged backgrounds

Loss of crops and infrastructure

Consumer

Facing higher food prices

Potential shortages of essential items with few substitutes

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Government

Need to reallocate budget for emergency response and long-term recovery

Other social priorities may be sacrificed to support these efforts

Challenges for Urban Agricultural Groups

Limited access to funding

Difficulties with city services during reconstruction

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Winners:

1. Insurance Companies: They may benefit from increased claims and premiums as farmers seek financial recovery from crop losses.

2. Emergency Services: Organizations involved in emergency response and recovery (e.g., firefighting agencies) may gain funding or grants to support their operations during disaster response.

3. Certain Consumers: Some consumers may seek alternative food sources (such as locally grown produce), which could benefit local markets or suppliers not affected by fires.

Losers:

1. Farmers: Particularly those in urban areas and from underprivileged backgrounds, face significant financial and psychological losses due to damaged crops and infrastructure.

2. Consumers: They experience higher prices for food and potential shortages, especially for essential items with limited substitutes, affecting their access to affordable nutrition.

3. Government Agencies: Facing the challenge of reallocating budgets to fund emergency responses, they may need to sacrifice other social programs or priorities, leading to broader societal impacts.

4. Urban Agricultural Groups: These groups encounter additional challenges, such as limited funding and access to city services during reconstruction, hindering their recovery efforts and ability to support the community.

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Present a comparative analysis of the current situation with a past policy or scenario.

Use real-world examples or expert viewpoints to provide a broader perspective.

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Wildfires and Economic Impact: Real-World Examples and Policy Lessons

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Wildfires and Economic Impact: Real-World Examples and Policy Lessons

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California wildfires have severely impacted agriculture—similar to Australia’s 2019 bushfires.

Like in Oregon (2020), wildfires destroyed crops, shut down food processing, and disrupted local economies.

Small and urban farmers are hit hardest due to lack of insurance or access to recovery resources.

Climate change is increasing wildfire risk worldwide—in places like Greece, Spain, and Canada—causing similar agricultural and food market issues.

Governments in places like Australia and Canada responded with emergency relief, reforestation grants, and price stabilization efforts.

Many U.S. farmers still lack proper support, showing that current government response often falls short of protecting long-term agricultural stability.

These examples show wildfires are economic disruptions that demand stronger government policy and planning.

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Initial price changes follow standard supply & demand theory

Disruption worsened by non-market factors:

Climate change effects not priced in

Insufficient forest management

Costly recovery, especially for:

Small-scale and urban farmers

Uninsured or low-profit growers

Behavioral responses reduce future supply:

Risk-averse farmers avoid reinvesting in land

These represent a market failure

Calls for government intervention to align private and public interests

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Application of the Equilibrium Model - Video

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Application of the Equilibrium Model - Video

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Supply and Demand: Wildfires destroy crops and reduce food supply, causing the supply curve to shift left. With demand staying steady, this leads to higher prices and lower quantity.

Market Failure: Farmers without insurance or resources can’t recover properly—this is a failure of the market to protect vulnerable groups.

Externalities: Wildfires are a negative externality—those affected (like consumers and farmers) aren’t the ones causing the problem (like lack of forest management or climate change).

Government Intervention: The government must step in to fix the failures—through crop insurance, disaster relief, and long-term prevention.

Behavioral Economics: After major losses, farmers may avoid reinvesting in land out of fear, which reduces future supply and worsens the problem.

Equity and Efficiency Trade-off: Policy decisions must balance quick relief with long-term planning, especially to support under-resourced farmers and consumers.

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Class Connection: This ties directly into what we’ve learned in class—especially how market failures, supply shocks, and externalities require government action to restore both efficiency and equity.

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Identify a policy that could mitigate the issues you discussed.

This section may be placed, moved, or removed depending on your analysis approach (e.g., if you chose to analyze the impact of policy, you may have introduced the policy in your first slide).

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Market Failure

Many small or urban farmers lack crop insurance or financial safety nets—this creates a failure in the market’s ability to protect producers.

Unintended Consequences

Wildfires discourage farmers from reinvesting in risky land, which reduces future supply and worsens long-term shortages.

Negative Externalities

Climate change and poor forest management increase wildfire risk, but the people most impacted—farmers and consumers—aren’t the ones causing it.

Information Imperfections

Farmers and consumers often don’t have clear access to forecasting tools or resources to prepare for disasters.

Why the Standard Model Doesn’t Fit

The equilibrium model assumes perfect markets, but real life includes risk, fear, and government delays that disrupt predictions.

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Positive analysis: California wildfires caused real economic disruption—destroyed crops, higher food prices, and stress on farmers and urban ag groups.

Normative analysis: Government should act to support farmers and communities, ensuring equity and long-term recovery.

Effectiveness of policies: Crop insurance, fire prevention, and urban ag support offer practical tools to stabilize the system.

Efficiency: These policies reduce long-term market disruptions and speed up recovery after disasters.

Equity: The most impacted—urban farmers, low-income communities, and consumers—gain needed protection and resources.

Winners: Insurance companies, emergency services, and some consumers who shift to local food sources.

Losers: Farmers (especially underprivileged), consumers facing food inflation, and government agencies under financial pressure.

Conclusion: Though trade-offs exist, the policies discussed are a necessary step toward fairness, resilience, and recovery.

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Expand crop insurance and disaster relief programs to help small and urban farmers recover from wildfire losses

Invest in preventive fire measures such as controlled burns, thinning, and infrastructure upgrades.

Provide grants and zoning support to promote urban agriculture as part of post-disaster recovery.

Use emergency food imports or government food reserves to stabilize prices after supply disruptions.

These policies aim to increase market resilience, protect food supply, and reduce long-term economic damage from wildfires

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The above graph illustrates how wildfires reduce the supply of agricultural goods in California, causing the supply curve to shift leftward. Since demand for food, particularly staple crops, remains relatively stable, the market experiences a new equilibrium where prices rise and quantities decrease. The result is a new market equilibrium characterized by a higher price and lower quantity.