Carefully evaluate: The supply and demand for agricultural products are such that small

Carefully evaluate: The supply and demand for agricultural products are such that small changes in agricultural supply result in drastic changes in prices. However, large changes in agricultural prices have modest effects on agricultural output. (Hint: A brief review of the distinction between supply and quantity supplied may be helpful.) Do exports increase or reduce the instability of demand for farm products? Explain. LO22.1

What relationship, if any, can you detect between the facts that farmers fixed costs of production are large and the supply of most agricultural products is generally inelastic? Be specific in your answer. LO22.1

Explain how each of the following contributes to the farm problem: LO22.1, LO22.2 a. The inelasticity of demand for farm products. b. The rapid technological progress in farming. c. The modest long-run growth in demand for farm commodities. d. The volatility of export demand.

The key to efficient resource allocation is shifting resources from low-productivity to high-productivity uses. In view of the high and expanding physical productivity of agricultural resources, explain why many economists want to divert additional resources away from fa

Explain and evaluate: Industry complains of the higher taxes it must pay to finance subsidies to agriculture. Yet the trend of agricultural prices has been downward, while industrial prices have been moving upward, suggesting that on balance agriculture is actually subsidizing industry. LO22.3

Because consumers as a group must ultimately pay the total income received by farmers, it makes no real difference whether the income is paid through free farm markets or through price supports supplemented by subsidies financed out of tax revenue. Do you agree? LO22.3

If in a given year the indexes of prices received and paid by farmers were 120 and 165, respectively, what would the parity ratio be? Explain the meaning of that ratio. LO22.3

Explain the economic effects of price supports. Explicitly include environmental and global impacts in your answer. On what grounds do economists contend that price supports cause a misallocation of resources? LO22.3

Do you agree with each of the following statements? Explain why or why not. LO22.3, LO22.4 a. The problem with U.S. agriculture is that there are too many farmers. That is not the fault of farmers but the fault of government programs. b. The federal government ought to buy up all U.S. farm surpluses and give them away to developing nations. c. All industries would like government price supports if they could get them; agriculture has obtained price supports only because of its strong political clout.

What are the effects of farm subsidies such as those of the United States and the European Union on (a) domestic agricultural prices, (b) world agricultural prices, and (c) the international allocation of agricultural resources? LO22.3

Use public choice theory to explain the persistence of farm subsidies in the face of major criticisms of those subsidies. If the special-interest effect is so strong, what factors made it possible in 1996 for the government to end price supports and acreage allotments for several crops? LO22.4

What was the major intent of the Freedom to Farm Act of 1996? Do you agree with the intent? Why or why not? Did the law succeed in reducing overall farm subsidies? Why or why not? LO22.5

Distinguish between price loss coverage and agricultural risk coverage. How do they help reduce the volatility of farm income? In what way do farm subsidies perpetuate the longstanding problem of too many resources in agriculture? LO22.5

last word What groups benefit and what groups lose from the U.S. sugar subsidy program?