The main contents of this chapter include all of the following: The explanation of antitrust, major antitrust laws, modern antitrust, types of mergers, the effectiveness of antitrust, the trend toward bigness, the microsoft case.
Trang 1Chapter 32
Farm Policy
Trang 2Chapter Outline
• FARM PRICES SINCE 1950
• PRICE VARIATION AS A JUSTIFICATION
FOR GOVERNMENT INTERVENTION
• CONSUMER AND PRODUCER SURPLUS
ANALYSIS OF PRICE FLOORS
• PRICE SUPPORT MECHANISMS AND
THEIR HISTORY
Trang 3Farm Prices Since 1950
• Raw food commodity prices have increased
much more slowly than overall inflation
• From 1982 to 1998 overall inflation was 68%
• Most food commodities cost less in 2000 than
in 1982 in nominal terms (40% less in real terms.)
• Hog prices in 2000 yielded less than 40% of their 1982 levels
Trang 420
40
60
80
100
120
140
160
180
1950 1955 1960 1965 1970 1975 1980 1985 1990
Year
Corn Beef hog Soybeans Milk
CPI
Farm Price Indexes
1982=100
Trang 5Price Variability as the Justification
for Government Intervention
• Argument for intervention on this
ground
– Highly variable prices create an unstable income for farmers reducing their interest
in farming
• Argument against intervention on this
ground
– Using options markets and crop insurance farmers can dampen the impact of this
variability
Trang 6Price Floors
commodity may not sell) is set to protect farmers from prices that go “too low.”
Trang 7Farm Markets Without Subsidies
D
Q/t
P*
Q*
A
C
H
• Value to the Consumer:
• 0ACQ*
• Consumers Pay Producers:
• OP*CQ*
• The Variable Cost to Producers:
• OHCQ*
• Consumer Surplus:
• P*AC
• Producer Surplus:
• HP*C
Trang 8Price Floors
D
Q/t
P*
Q*
A
C
H
G
Price Floor
B
Pfloor
Q
• Value to the Consumer:
• 0ABQD
• Consumers Pay Producers:
• OPfloorBQD
• The Variable Cost to Producers:
• OHGQD
• Consumer Surplus:
• PfloorAB
• Producer Surplus:
• HPfloorBG
• DWL
• BEC
Trang 9Government Purchase of
Excess Goods
D
Q/t
Price Floor P*
Q*
A
B
C
E
F H
G I
J
Pfloor
Q Q
• Value to the Consumer:
• OABQD
• Consumers Pay Producers:
• OPfloorBQD
• Government Pays Producers:
• QDBEQs
• The Variable Cost to Producers:
• OHEQS
• Consumer Surplus:
• PfloorAB
• Producer Surplus:
• HPfloorE
• ECF
Trang 10P S
D
Q/t
Price Floor P*
Q*
A
B
C
E
F H
G I
J
Pfloor
Q Q
• Value to the Consumer:
• OAFQS
• Consumers Pay Producers:
• OJFQS
• Government Pays Producers:
• JPfloorEF
• The Variable Cost to Producers:
• OHEQS
• Consumer Surplus:
• JAF
• Producer Surplus:
• HPfloorE
• ECF
Government Lowers the Price
to Consumers
Trang 11Variable Floors
• The Eau Claire Rule: the wholesale
price floor on milk is set as a function of the distance between a given
community and Eau Claire, Wisconsin.
• This subsidizes milk production on the
coasts of the United States.
Trang 12What Would Happen Without
Price Floors
• Prices would fall
• Production would fall.
• Farmers would leave the industry until
the price of commodities reached a level consistent with zero economic profit (normal profit).
Trang 13History of Price Supports:
Buying programs
• Began in the 1930s
• Reached a peak in the 1980s
• The federal government purchased vast
quantities of corn, soybeans, milk to be stored The milk was powdered or turned into blocks of American Cheese
• The cheese given away to the poor in the
1982 recession (which was the origin of the phrase “government cheese”.)
Trang 14History of Price Supports:
Output Restrictions
• The buying programs were ended in the 1980s and were replaced with programs where the government offered higher
prices for limited production.
• The programs
– purchased dairy herds and slaughtered them
– Ordered grain farmers to set aside plots if they wanted the subsidized price