1. AGRICULTURE ECONOMICS AND POLICY33
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
Unstable Foreign Demand

3. 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

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 Technology and
ECONOMICS OF AGRICULTURE
Long Run Problem:
A Declining Industry
Technology and
Supply Increases
Income-Inelastic Demand
Population Growth
Agribusiness
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 Ethiopia Mozambique China India Brazil Russia Japan
Percentage of Labor Force in
Agriculture, Selected Nations
Ethiopia
Mozambique
China
India
Brazil
Russia
Japan
France
Germany
United States
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. 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

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

12. 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

13. 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

14. 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

15. 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
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END

16. Next:
Income Inequality & Poverty
Chapter 34