AGRICULTURE ECONOMICS AND POLICY

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Presentation transcript:

AGRICULTURE ECONOMICS AND POLICY 33 C H A P T E R AGRICULTURE ECONOMICS AND POLICY

Short Run Problem: Price and Income Instability Inelastic Demand for ECONOMICS OF AGRICULTURE Short Run Problem: Price and Income Instability Inelastic Demand for Agricultural Products Fluctuations in Output Fluctuations in Demand Unstable Foreign Demand

EFFECT OF OUTPUT CHANGES ON FARM PRICES AND INCOME Small changes in quantity produced... Pp Make large changes in farm prices Pn Pb D Qp Qn Qb

EFFECT OF OUTPUT CHANGES ON FARM PRICES AND INCOME Small changes in demand... Make large changes in farm prices P1 P2 D1 D2 Qn

Long Run Problem: Graphically... A Declining Industry Technology and ECONOMICS OF AGRICULTURE Long Run Problem: A Declining Industry Technology and Supply Increases Income-Inelastic Demand Population Growth Agribusiness Graphically...

LONG-RUN FARM PROBLEM Demand Increases... S1 P1 D2 D1 Q1

LONG-RUN FARM PROBLEM Are Offset by Larger Supply Increases S1 S2 P1 Technology causes supply to increase even more thereby reducing farm prices P2 D2 D1 Q1 Q2

GLOBAL PERSPECTIVE Ethiopia Mozambique China India Brazil Russia Japan Percentage of Labor Force in Agriculture, Selected Nations 0 25 50 75 100 Ethiopia Mozambique China India Brazil Russia Japan France Germany United States Source: International Labour Office

= Agricultural Adjustment Act of 1933 Parity Concept Parity Ratio ECONOMICS OF FARM POLICY Rationale for Farm Subsidies Agricultural Adjustment Act of 1933 Parity Concept Parity Ratio Prices received by farmers Prices paid by farmers Parity Ratio =

Resource Overallocation Other Social Losses Environmental Costs ECONOMICS OF PRICE SUPPORTS Surplus Output Gain to Farmers Loss to Consumers Resource Overallocation Other Social Losses Environmental Costs International Costs

EFFECT OF PRICE SUPPORTS Surplus Price Support Level Ps Surplus being created by the subsidies Pe D Q Qc Qs Qe

Reduction of Surpluses Restricting Supply Acreage Allotment Programs ECONOMICS OF PRICE SUPPORTS Reduction of Surpluses Restricting Supply Acreage Allotment Programs Bolstering Demand New Uses Domestic and Foreign Demand

Policy Contradictions The Politics of Farm Policy Public Choice Theory CRITICISM, POLITICS, AND REFORM Symptoms, Not Causes Misguided Subsidies Policy Contradictions The Politics of Farm Policy Public Choice Theory Changing Politics Declining Political Support World Trade Considerations

Chapter Conclusions Recent Reform Freedom to Farm Act 1996 CRITICISM, POLITICS, AND REFORM Recent Reform Freedom to Farm Act 1996 Transition Payments Expected Outcomes Emergency Aid Chapter Conclusions

short-run farm problem long-run farm problem agribusiness KEY TERMS short-run farm problem long-run farm problem agribusiness parity concept parity ratio price supports acreage allotments Freedom to Farm Act Copyright McGraw-Hill/Irwin 2002 BACK END

Next: Income Inequality & Poverty Chapter 34

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