Chapter 11 - Government Intervention in Agriculture Chapter...

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Government Intervention in Agriculture Chapter 11
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Topics of Discussion Defining the “Farm Problem” Government intervention Consumer issues Price and income support Domestic demand expansion Importance of export demand
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Price and Income Support A Historical Perspective Loan rate mechanism Set-aside mechanism Target price mechanism Conservation reserve mechanism Commodities covered by government programs
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The “Farm Problem” Inelastic demand and bumper crop Lack of market power Interest sensitivity Trade sensitivity Asset fixity and excess capacity
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Page 240 An increase in supply causes price to fall sharply.
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Page 241 If the demand curve is more elastic (D 2 ), the price will only fall to price P 2 rather than P 3 for a given increase in supply.
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Recent Approaches to Supporting Farm Prices and Income
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Page 248 Market Level Effects of Loan Rates Free market equilibrium occurs at point E. Let’s assume that P F is below a politically acceptable price, and that the price desired by policymakers is P G .
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Page 248 Market Level Effects of Loan Rates The Commodity Credit Corporation of the USDA began in the Thirties to acquire excess supply at the desired price its through non- recourse loan provisions.
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