AGED 570: Teaching H.S. Agricultural Economics Day 12: Teaching Agricultural Policy Concepts

Todays agenda Terms Share Pair Muddiest Concept Activity 1: Externality and Market Failure Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus Reflection

Terms Share Pair Market Failure Government Purchase Program Direct Payments Externality Coupled Direct Payments Nonrecourse Loan Program Farm Policy Target Price Tariffs Loan Rate Deficiency Payment Subsidies Supply Controls Loan Deficiency Payment Consumer Surplus Land Retirement Programs Producer Surplus Decoupled Direct Payments Price Supports Acreage Allotments

Muddiest Point and Terms Discussion

Activity 1: Externality and Market Failure Objective: To understand what is an externality and how does it relate to market failure Definition for Externality “Externalities arise whenever the actions of one economic agent directly affect another economic agent outside the market mechanism” Source: https://scholar.harvard.edu/files/stantcheva/files/lecture7.pdf

Activity 1: Externality and Market Failure Definition of Market Failure An inefficient allocation of resources An individuals will come to the front You will have one to two minutes to study the photo and come up with an explanation for what the externality is and why there may be a market failure You will also provide the class with an example of an externality similar to the one shown that you have experienced

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 1: Externality and Market Failure

Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus Objective: To understand what is farm policy, why does it exist, and how it relates to consumer and producer surplus Farm Policy is the set of laws and regulations that pertain to domestic agricultural production, its exports, and the imports of agricultural products from another country Policy analysis takes into account the effects to producer and consumer surplus Producer surplus is the difference between the price that a good is sold for and the producer’s supply curve, which is also the producers marginal cost

Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus Consumer surplus is the difference between the amount the individual was willing to pay for a good and its price

Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus Price Support Video https://www.pbs.org/video/price-support-farm-bill-z5l3xk/ Discussion Based on the video, why do you think we do price supports in the US?

Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus Each student will be given a supply or demand curve You will need to break up into two groups, one that is the producers and one that is the consumers (How do you know which you are?) A price will be called out, it will be the job of the producer to sell as many as she/he can to obtain the highest producer surplus, and the consumer will but as much as he/she can to maximize consumer surplus How much consumer’s and producer’s surplus was achieved

Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus Once an equilibrium price is found. Suppose the producers start to gripe to the government that they are not receiving enough income to survive The government will now guarantee a price $1 above the equilibrium price The producer and consumer will try to maximizes their surpluses by buying and selling Note if there is any product left over, the government will purchase the rest of the producers goods

Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus How much was producer surplus, consumer surplus and what did the government have to spend? Who is better off and who is worse off? Now suppose that the government decides to put a quota on the number that can be sold at 24 because it does not want to have to purchase surplus production What is the price that the consumer would be willing to pay that will sell all 24 units

Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus What is consumer surplus and producer surplus at this price and quantity combination? Which situation did the producer prefer? Which situation did the consumer prefer? Which situation did the government prefer?

Reflection on Teaching High School Agricultural Economics