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AGRICULTURE: ECONOMICS AND POLICY

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

2 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 Foreign Demand Instability

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

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

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

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

7 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

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

9 = 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 =

10 GLOBAL PERSPECTIVE Switzerland Norway South Korea Japan European Union
Government Agricultural Subsidies Percentage of Farm Production Switzerland Norway South Korea Japan European Union United States Mexico Canada Turkey Australia Source: International Labour Office

11 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

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

13 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

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

15 Chapter Conclusions Recent Reform Freedom to Farm Act 1996
CRITICISM AND POLITICS Recent Reform Freedom to Farm Act 1996 The Farm Act of 2002 Direct Payments Countercyclical Payments Marketing Loans Chapter Conclusions

16 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 Farm Act of 2002 direct payments countercyclical payments (CCP) Copyright McGraw-Hill/Irwin, Inc BACK END

17 Next: Income Inequality & Poverty Chapter 34

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