Post on 28-Mar-2015
AGRICULTURE AND AGRICULTURAL POLICY
• Subsidies– effects on price and output– the incidence of a subsidy
– Subsidy is an amount paid for every unit produced. It reduces the cost to the farmer of supplying the good and moves the supply curve down and out.
Effect of subsidies on foodstuffs in which the country is self-sufficient 1
P
Q O
D
Qe
Pe
S
Effect of subsidies on foodstuffs in which the country is self-sufficient
P
Q O
D
Qe
Pe
S + subsidy
S
Effect of subsidies on foodstuffs in which the country is self-sufficient
P
Q O
D
Q1Qe
Pe
P1
S + subsidy
S Note at Pe farmers willing to supply Q2,
But then Supply exceeds demand
Q2
so price must fall to P1
Effect of subsidies on foodstuffs in which the country is self-sufficient 2
P
Q O
D
Q1Qe
Pe
Pg
P1
S + subsidy
S
Subs
idy
Effect of subsidies on foodstuffs in which the country is self-sufficient
P
Q O
D
Q1Qe
Pe
Pg
P1
S + subsidy
S
Subs
idy Note two parts to the subsidy in
this example:
1. Getting higher price Pg
2. But also selling more, S1
Depends on pD
Effect of subsidies on foodstuffs which are partly imported
P
Q O
D
Pw
SEU
Sworld
Effect of subsidies on foodstuffs which are partly imported
P
Q O
D
Qd
Pw
SEU
Sworld
QS1Imports
Effect of subsidies on foodstuffs which are partly imported
P
Q O
D
Qd
Pw
S + subsidy
SEU
Sworld
QS1
Effect of subsidies on foodstuffs which are partly imported
P
Q O
D
QS2Qd
Pw
S + subsidy
SEU
Sworld
QS1Imports
P
Q O
D
QS2Qd
Pw
Pg
S + subsidy
SEU
Sworld
QS1
Effect of subsidies on foodstuffs which are partly imported
P
Q O
D
QS2Qd
Pw
Pg
S + subsidy
SEU
Sworld
QS1
Effect of subsidies on foodstuffs which are partly imported