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Economics Principles, Problems, and Policies

Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn

Chapter 19

Agriculture: Economics and Policy - all with Video Answers

Educators

Chapter Questions

05:15

Problem 1

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.

Puneet Prajapati
Puneet Prajapati
Numerade Educator
05:39

Problem 2

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.

Puneet Prajapati
Puneet Prajapati
Numerade Educator
07:41

Problem 3

Explain how each of the following contributes to the farm problem:
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.

Puneet Prajapati
Puneet Prajapati
Numerade Educator
06:54

Problem 4

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 from farming to achieve allocative efficiency.

Puneet Prajapati
Puneet Prajapati
Numerade Educator
05:47

Problem 5

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."

Puneet Prajapati
Puneet Prajapati
Numerade Educator
04:51

Problem 6

"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?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
04:05

Problem 7

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.

Puneet Prajapati
Puneet Prajapati
Numerade Educator
05:55

Problem 8

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?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
01:48

Problem 9

Use supply and demand curves to depict equilibrium price and output in a competitive market for some farm product. Then show how an above-equilibrium price floor (price support) would cause a surplus in this market. Demonstrate in your graph how government could reduce the surplus through a policy that $(a)$ changes supply or $(b)$ changes demand. Identify each of the following actual government policies as primarily affecting the supply of or the demand for a particular farm product: acreage allotments; foodstamp program; Food for Peace program; a government buyout of dairy herds; export promotion.

Achintya Suden
Achintya Suden
Numerade Educator
05:34

Problem 10

Do you agree with each of the following statements? Explain why or why not.
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 obtained price supports only because of its strong political clout.

Puneet Prajapati
Puneet Prajapati
Numerade Educator
07:05

Problem 11

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?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
05:49

Problem 12

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?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
04:11

Problem 13

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?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
08:24

Problem 14

Distinguish the major features of direct subsidies, countercyclical payments, and marketing loan subsidies under the Food, Conservation, and Energy Act of $2008 .$ In what way do countercyclical payments and marketing loans help reduce the volatility of farm income? In what way do direct subsidies perpetuate the long-run farm problem of too many resources in agriculture?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
06:43

Problem 15

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

Puneet Prajapati
Puneet Prajapati
Numerade Educator