Bài giảng MicroEconomics - Chapter 19 Agriculture: Economics and Policy

Agriculture: Economics and PolicyMcGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Economics of AgricultureExtreme diversityFarm products and food productsShort-run price and income instabilityInelastic demand Fluctuations in outputFluctuation in demandDependence on world marketsLO119-2Economics of AgricultureEffects of changes in farm output on agricultural prices and income DQpPpQ0PPnPbQnQbNormal FarmIncomenpbIncreases in output reduce farm incomeLO119-3Economics of Agriculture The effects of a demand shift on agricultural prices and income D1P1Q0PP2QnbaD2Shift in demand causes a large change in price and farm incomeLO119-4The Long Run: A Declining IndustrySupply increased rapidlyTechnological progressDemand increased slowlyInelastic with respect to incomePopulation growthLO219-5The Long Run: A Declining Industry Long-run decline of agricultural prices and farm income D1P1Q0PP2Q1baD2S1S2Q2cLO219-6The Long Run: A Declining IndustryMajor consequencesIncreased minimum efficient scale (MES)ConsolidationAgribusinessMassive exit of workersFarm labor 2% of labor forceFarm-household incomeLO219-7Economics of Farm PolicySubsidized since 1930sSupport for agricultural prices, income, and outputSoil and water conservationAgricultural researchFarm creditCrop insuranceSubsidized sale of farm products in world marketsLO319-8Economics of Farm PolicyLO319-9Economics of Farm PolicyRationale for farm subsidiesNecessities of life“Family farm” institutionExtraordinary hazardsCompetitive markets for output while inputs have significant market powerLO319-10Economics of Farm PolicyAgricultural Adjustment Act of 1931 established parity conceptParticular real output results in same real incomePreserve purchasing powerRationale for price supportsParity Ratio =Prices Received by FarmersPrices Paid by FarmersLO319-11Economics of Farm PolicyEconomics of price supportsEffective price floorGenerates surplus outputGain to farmersLoss to consumersEfficiency lossesOther social lossesEnvironmental costsInternational costsLO319-12Q0PbaSSDDPeQePsTax BurdenOf SurplusQcQsLO3Economics of Farm PolicySurplusc19-13Economics of Farm PolicyReduction of surplusesRestricting supply Acreage allotmentsBolstering demandGasoholBiodieselCorn-based ethanolThe ethanol programHigher food pricesSecondary effectsLO319-14Criticisms and PoliticsCriticisms of parity conceptCriticisms of price supportsSymptoms not causesMisguided subsidiesPolicy contradictionsLO419-15The Politics of Farm PolicyPublic choice theory revisitedChanging politicsDeclining political supportWorld trade considerationsRecent farm policyFreedom to Farm Act of 1996Food, Conservation, and Energy Act of 2008LO519-16