TAILIEUCHUNG - Lecture Economics (19/e) - Chapter 19: Agriculture: Economics and policy

After reading this chapter, you should be able to: Explain why agricultural prices and farm income are unstable, discuss why there has been a huge employment exodus from agriculture to other . industries over the past several decades, relate the rationale for farm subsidies and the economics and politics of price supports (price floors), describe major criticisms of the price-support system in agriculture, list the main elements of existing Federal farm policy. | Agriculture: Economics and Policy McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Economics of Agriculture Extreme diversity Farm products and food products Short-run price and income instability Inelastic demand Fluctuations in output Fluctuation in demand Dependence on world markets LO1 19- Economics of Agriculture Effects of changes in farm output on agricultural prices and income D Qp Pp Q 0 P Pn Pb Qn Qb Normal Farm Income n p b Increases in output reduce farm income LO1 19- Economics of Agriculture The effects of a demand shift on agricultural prices and income D1 P1 Q 0 P P2 Qn b a D2 Shift in demand causes a large change in price and farm income LO1 19- The Long Run: A Declining Industry Supply increased rapidly Technological progress Demand increased slowly Inelastic with respect to income Population growth LO2 19- The Long Run: A Declining Industry Long-run decline of agricultural prices and farm income D1 P1 Q 0 P P2 Q1 b a D2 S1 S2 Q2 c LO2 19- The Long Run: A Declining Industry Major consequences Increased minimum efficient scale (MES) Consolidation Agribusiness Massive exit of workers Farm labor 2% of labor force Farm-household income LO2 19- Economics of Farm Policy Subsidized since 1930s Support for agricultural prices, income, and output Soil and water conservation Agricultural research Farm credit Crop insurance Subsidized sale of farm products in world markets LO3 19- Economics of Farm Policy LO3 19- Economics of Farm Policy Rationale for farm subsidies Necessities of life “Family farm” institution Extraordinary hazards Competitive markets for output while inputs have significant market power LO3 19- Economics of Farm Policy Agricultural Adjustment Act of 1931 established parity concept Particular real output results in same real income Preserve purchasing power Rationale for price supports Parity Ratio = Prices Received by .

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