19.1 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.
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19.2 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.
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19.3 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.
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19.4 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 away from farming in
order to achieve allocative efficiency.
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19.5
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.”
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19.6 “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?
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19.7 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.
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19.8 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?
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19.9 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, the food-stamp program, the
Food for Peace program, a government buyout of dairy herds, and export
promotion.
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19.10 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 has obtained price supports only because of its strong
political clout.
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19.11 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?
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19.12 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?
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19.13 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?
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19.14 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?
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19.15 LAST WORD What groups benefit and what groups lose from the U.S. sugar subsidy program
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