33 - 1 copyright mcgraw-hill/irwin, inc. 2005 economics of agriculture effect of output changes on...

33 - 1Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

AGRICULTURE:ECONOMICS AND

POLICY

33C H A P T E R

33 - 2Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

ECONOMICS OF AGRICULTURE

Short Run Problem:Price and Income Instability

Inelastic Demand for Agricultural Products

Fluctuations in Output

Fluctuations in Demand

Foreign Demand Instability

33 - 3Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

EFFECT OF OUTPUT CHANGES ONFARM PRICES AND INCOME

Pp

Pn

Pb

Qp Qn Qb

Small changes in quantity produced...

D

Make large changesin farm prices

NormalFarm

Income

33 - 4Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

EFFECT OF OUTPUT CHANGES ONFARM PRICES AND INCOME

P1

P2

Qn

Small changes in demand...

D1

Make largechanges infarm prices

D2

33 - 5Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

Long Run Problem:A Declining Industry Technology and Supply Increases

Agribusiness

Population GrowthIncreased MES

Income-Inelastic Demand

Graphically...

ECONOMICS OF AGRICULTURE

33 - 6Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

P1

Demand Increases...

D2D1

S1

Q1

LONG-RUN FARM PROBLEM

33 - 7Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

P2

P1

Are Offset by Larger Supply Increases

D2D1

S1 S2

Q1 Q2

Technology causessupply to increaseeven more thereby

reducing farmprices

LONG-RUN FARM PROBLEM

33 - 8Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

EthiopiaMozambique

ChinaIndia

BrazilRussiaJapan

FranceUnited States

Germany

0 25 50 75 100

GLOBAL PERSPECTIVEPercentage of Labor Force inAgriculture, Selected Nations

Source: International Labour Office

33 - 9Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

ECONOMICS OF FARM POLICY

Rationale for Farm Subsidies

Agricultural Adjustment Act of 1933

Parity ConceptParity Ratio

Prices received by farmers

Prices paid by farmers

ParityRatio =

33 - 10Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

SwitzerlandNorway

South KoreaJapan

European UnionUnited States

MexicoCanadaTurkey

Australia

0 20 40 60 80

GLOBAL PERSPECTIVEGovernment Agricultural Subsidies Percentage of Farm Production

Source: International Labour Office

33 - 11Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

ECONOMICS OF PRICE SUPPORTS

• Surplus Output• Gain to Farmers• Loss to Consumers• Resource Overallocation • Other Social Losses• Environmental Costs• International Costs

33 - 12Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

EFFECT OF PRICE SUPPORTS

Pe

D

S

QeQc Qs

Surplus

Ps

Surplus beingcreated by the

subsidies

Q

P

Price SupportLevel

33 - 13Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

ECONOMICS OF PRICE SUPPORTS

Reduction of Surpluses•Restricting Supply

•Acreage Allotment Programs

•Bolstering Demand•New Uses•Domestic and Foreign Demand

33 - 14Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

CRITICISM AND POLITICS

Misguided SubsidiesPolicy Contradictions

Symptoms, Not Causes

The Politics of Farm PolicyPublic Choice Theory

Changing Politics•Declining Political Support•World Trade Considerations

33 - 15Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

Recent Reform

Freedom to Farm Act 1996

The Farm Act of 2002

Direct Payments

Countercyclical Payments

Marketing LoansChapter Conclusions

CRITICISM AND POLITICS

short-run farm problemlong-run farm problemagribusinessparity conceptparity ratioprice supportsacreage allotments Freedom to Farm ActFarm Act of 2002direct paymentscountercyclical payments (CCP)

ENDBACKCopyright McGraw-Hill/Irwin, Inc. 2005

33 - 17Copyright 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

PreviousSlide

NextSlide

EndEndShowShow

Next:

Income Inequality & PovertyChapter 34