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33 - 1 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics.

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Presentation on theme: "33 - 1 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics."— Presentation transcript:

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2 33 - 1 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show AGRICULTURE: ECONOMICS AND POLICY 33 C H A P T E R

3 33 - 2 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show ECONOMICS OF AGRICULTURE Short Run Problem: Price and Income Instability Inelastic Demand for Agricultural Products Fluctuations in Output Fluctuations in Demand Foreign Demand Instability

4 33 - 3 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show EFFECT OF OUTPUT CHANGES ON FARM PRICES AND INCOME PpPp PnPn PbPb QpQp QnQn QbQb Small changes in quantity produced... D Make large changes in farm prices Normal Farm Income

5 33 - 4 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show EFFECT OF OUTPUT CHANGES ON FARM PRICES AND INCOME P1P1 P2P2 QnQn Small changes in demand... D1D1 Make large changes in farm prices D2D2

6 33 - 5 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show Long Run Problem: A Declining Industry Technology and Supply Increases Agribusiness Population Growth Increased MES Income-Inelastic Demand Graphically... ECONOMICS OF AGRICULTURE

7 33 - 6 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show P1P1 Demand Increases... D2D2 D1D1 S1S1 Q1Q1 LONG-RUN FARM PROBLEM

8 33 - 7 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show P2P2 P1P1 Are Offset by Larger Supply Increases D2D2 D1D1 S1S1 S2S2 Q1Q1 Q2Q2 Technology causes supply to increase even more thereby reducing farm prices LONG-RUN FARM PROBLEM

9 33 - 8 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show Ethiopia Mozambique China India Brazil Russia Japan France United States Germany 0 25 50 75 100 GLOBAL PERSPECTIVE Percentage of Labor Force in Agriculture, Selected Nations Source: International Labour Office

10 33 - 9 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show 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 =

11 33 - 10 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show Switzerland Norway South Korea Japan European Union United States Mexico Canada Turkey Australia 0 20 40 60 80 GLOBAL PERSPECTIVE Government Agricultural Subsidies Percentage of Farm Production Source: International Labour Office

12 33 - 11 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show ECONOMICS OF PRICE SUPPORTS Surplus Output Gain to Farmers Loss to Consumers Resource Overallocation Other Social Losses Environmental Costs International Costs

13 33 - 12 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show EFFECT OF PRICE SUPPORTS PePe D S QeQe QcQc QsQs Surplus PsPs Surplus being created by the subsidies Q P Price Support Level

14 33 - 13 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show ECONOMICS OF PRICE SUPPORTS Reduction of Surpluses Restricting Supply Acreage Allotment Programs Bolstering Demand New Uses Domestic and Foreign Demand

15 33 - 14 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show CRITICISM AND POLITICS Misguided Subsidies Policy Contradictions Symptoms, Not Causes The Politics of Farm Policy Public Choice Theory Changing Politics Declining Political Support World Trade Considerations

16 33 - 15 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show Recent Reform Freedom to Farm Act 1996 The Farm Act of 2002 Direct Payments Countercyclical Payments Marketing Loans Chapter Conclusions CRITICISM AND POLITICS

17 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) ENDBACK Copyright McGraw-Hill/Irwin, Inc. 2005

18 33 - 17 Copyright McGraw-Hill/Irwin, Inc. 2005 Economics of Agriculture Effect of Output Changes on Farm Prices and Income Long-Run Farm Problem Economics of Farm Policy Economics of Price Supports Effect of Price Supports Criticism and Politics Key Terms Previous Slide Next Slide End Show Next: Income Inequality & Poverty Chapter 34

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