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

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

3. 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

4. Muddiest Point and Terms Discussion

5. 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:

6. 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

7. Activity 1: Externality and Market Failure

8. Activity 1: Externality and Market Failure

9. Activity 1: Externality and Market Failure

10. Activity 1: Externality and Market Failure

11. Activity 1: Externality and Market Failure

12. Activity 1: Externality and Market Failure

13. Activity 1: Externality and Market Failure

14. Activity 1: Externality and Market Failure

15. Activity 1: Externality and Market Failure

16. Activity 1: Externality and Market Failure

17. Activity 1: Externality and Market Failure

18. Activity 1: Externality and Market Failure

19. 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

20. 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

21. Activity 2: Farm Policy, Consumer Surplus, and Producer Surplus
Price Support Video
Discussion
Based on the video, why do you think we do price supports in the US?

22. 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

23. 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

24. 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

25. 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?

26. Reflection on Teaching High School Agricultural Economics