chapter6 (5) - The agreements reached in Hong Kong...

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The agreements reached in Hong Kong distinguish between export subsidies in agriculture and all other forms of domestic support that increase production. Tax incentives and other types of subsidies This is because it is expected that these other forms have less impact on exports than do direct subsidies. In the following we will examine the impact of a production subsidy in agriculture for a small country. A production subsidy is when the government provides a subsidy of s dollars for every unit (for example, tons of sugar) that a Home firm produces. It is a subsidy to every unit produced, not just to units exported. The subsidy can be implemented by the government: guaranteeing a minimum price to the farmer. providing subsidies to the users of the crop to purchase it, thereby increasing demand for the crop and the price. Effect of a Production Subsidy in a Small Home Country We have a small country with a fixed world price of P W . There is a subsidy of s increasing Home price to
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This note was uploaded on 02/16/2012 for the course EC 340 taught by Professor Ballie during the Spring '10 term at Michigan State University.

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chapter6 (5) - The agreements reached in Hong Kong...

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