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Page 1: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

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.

Page 2: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

Effect of subsidies on foodstuffs in which the country is self-sufficient 1

P

Q O

D

Qe

Pe

S

Page 3: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

Effect of subsidies on foodstuffs in which the country is self-sufficient

P

Q O

D

Qe

Pe

S + subsidy

S

Page 4: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

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

Page 5: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

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

Page 6: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

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

Page 7: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

Effect of subsidies on foodstuffs which are partly imported

P

Q O

D

Pw

SEU

Sworld

Page 8: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

Effect of subsidies on foodstuffs which are partly imported

P

Q O

D

Qd

Pw

SEU

Sworld

QS1Imports

Page 9: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

Effect of subsidies on foodstuffs which are partly imported

P

Q O

D

Qd

Pw

S + subsidy

SEU

Sworld

QS1

Page 10: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

Effect of subsidies on foodstuffs which are partly imported

P

Q O

D

QS2Qd

Pw

S + subsidy

SEU

Sworld

QS1Imports

Page 11: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

P

Q O

D

QS2Qd

Pw

Pg

S + subsidy

SEU

Sworld

QS1

Effect of subsidies on foodstuffs which are partly imported

Page 12: AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced.

P

Q O

D

QS2Qd

Pw

Pg

S + subsidy

SEU

Sworld

QS1

Effect of subsidies on foodstuffs which are partly imported


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