government intervention in the market. government intervention in the market the control of prices
TRANSCRIPT
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Government InterventionGovernment Interventionin the Marketin the Market
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Government Intervention in the MarketGovernment Intervention in the Market
The Control of Prices
The Control of Prices
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Equilibrium price and the absence of shortages and surpluses
• Minimum prices
– justification
– effects
• Equilibrium price and the absence of shortages and surpluses
• Minimum prices
– justification
– effects
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Minimum price: price floorMinimum price: price floorP
Q O
Pe
S
D
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Minimum price: price floorMinimum price: price floorP
Q O
Pe
minimumprice
Qd Qs
S
D
surplus
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Minimum prices– justification
– effects
– dealing with resulting surpluses
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Maximum price: price ceilingMaximum price: price ceilingP
Q O
Pe
S
D
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Maximum price: price ceilingMaximum price: price ceilingP
Q O
Pe
S
D
Qs Qd
maximumprice
shortage
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
– dealing with resulting shortages
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
– dealing with resulting shortages
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
– dealing with resulting shortages
– rationing
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
– dealing with resulting shortages
– rationing
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THE CONTROL OF PRICESTHE CONTROL OF PRICES
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
– dealing with resulting shortages
– rationing
– black markets
• Minimum prices– justification
– effects
– dealing with resulting surpluses
• Maximum prices– justification
– effects
– dealing with resulting shortages
– rationing
– black markets
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P
QO
Pe
D
S
Effect of price control on black-market pricesEffect of price control on black-market prices
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P
QO
Pg
Pe
D
S
Effect of price control on black-market pricesEffect of price control on black-market prices
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P
QO
Pg
Pe
Qs Qd
D
S
Effect of price control on black-market pricesEffect of price control on black-market prices
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P
QO
Pb
Pg
Pe
Qs Qd
D
S
Effect of price control on black-market pricesEffect of price control on black-market prices
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P
QO
Pb
Pg
Pe
Qs Qd
D
S
Effect of price control on black-market pricesEffect of price control on black-market prices
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INDIRECT TAXESINDIRECT TAXES
• Specific and ad valorem taxes
• Effects on supply curve
• Specific and ad valorem taxes
• Effects on supply curve
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S
P
Q O
Effect of a tax on the supply curveEffect of a tax on the supply curve
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S + specific tax
S
amount ofspecific tax
P
Q O
Effect of a tax on the supply curveEffect of a tax on the supply curve
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S + ad valorem tax
S
P
Q O
Effect of a tax on the supply curveEffect of a tax on the supply curve
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INDIRECT TAXESINDIRECT TAXES
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
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INDIRECT TAXESINDIRECT TAXES
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
– the producers' share
– the consumers' share
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
– the producers' share
– the consumers' share
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S
P
Q O
P1
Q1
D
Effect of a tax on price and quantityEffect of a tax on price and quantity
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S + tax
S
O
P1 + tax
P1
P2
Q1Q2
D
P
Q
Effect of a tax on price and quantityEffect of a tax on price and quantity
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INDIRECT TAXESINDIRECT TAXES
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
– the producers' share
– the consumers' share
• Elasticity and the incidence of taxation
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
– the producers' share
– the consumers' share
• Elasticity and the incidence of taxation
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S + tax
S
O
P1
Q1
D
P
Q
Incidence of tax: inelastic demandIncidence of tax: inelastic demand
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S + tax
S
O
P1
P2
Q2 Q1
D
P
Q
Incidence of tax: inelastic demandIncidence of tax: inelastic demand
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S + tax
S
O
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
P2 - t P2 - t PRODUCERS’ SHAREPRODUCERS’ SHARE
P
Q
Incidence of tax: inelastic demandIncidence of tax: inelastic demand
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S + tax
S
O
P1
Q1
D
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
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S + tax
S
O
P1
P2
Q1
D
Q2
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
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S + tax
S
O
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
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S + tax
S
O
P2 - t
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
PRODUCERS’ SHARE
PRODUCERS’ SHARE
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
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S + tax
S
O
P1
Q1
D
P
Q
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
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S + tax
S
O
P1
P2
Q1
D
Q2
P
Q
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
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S + tax
S
O
P1
P2
Q2 Q1
D
P
Q
CONSUMERS’ SHARECONSUMERS’ SHARE
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
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S + tax
S
O
P2 - t
P1
P2
Q2 Q1
D
P
Q
CONSUMERS’ SHARECONSUMERS’ SHARE
PRODUCERS’ SHAREPRODUCERS’ SHARE
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
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S + taxP
Q O
P1
Q1
D
S
Incidence of tax: elastic supplyIncidence of tax: elastic supply
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S + taxP
Q O
P1
P2
Q1
D
Q2
S
Incidence of tax: elastic supplyIncidence of tax: elastic supply
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S + taxP
Q O
P1
P2
Q2 Q1
D
SCONSUMERS’
SHARECONSUMERS’
SHARE
Incidence of tax: elastic supplyIncidence of tax: elastic supply
![Page 43: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/43.jpg)
S + taxP
Q O
P2 - t
P1
P2
Q2 Q1
D
SCONSUMERS’
SHARECONSUMERS’
SHARE
PRODUCERS’ SHARE
PRODUCERS’ SHARE
Incidence of tax: elastic supplyIncidence of tax: elastic supply
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S + tax
S
O
P2 - t
P1
P2
Q2 Q1
D
P
Q
CONSUMERS’ SHARECONSUMERS’ SHARE
PRODUCERS’ SHAREPRODUCERS’ SHARE
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
![Page 45: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/45.jpg)
INDIRECT TAXESINDIRECT TAXES
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
– the producers' share
– the consumers' share
• Elasticity and the incidence of taxation
• Implications for tax policy
• Specific and ad valorem taxes
• Effects on supply curve
• The incidence of taxation
– the producers' share
– the consumers' share
• Elasticity and the incidence of taxation
• Implications for tax policy
![Page 46: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/46.jpg)
Government Intervention in the MarketGovernment Intervention in the Market
Government Rejection of
Market Allocation
Government Rejection of
Market Allocation
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• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
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P
Q
S
DP0
Qs Qdshortage
The demand for and supply of hospital treatmentThe demand for and supply of hospital treatment
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P
Q
Pe
S
DP0
Qs Qdshortage
The demand for and supply of hospital treatmentThe demand for and supply of hospital treatment
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• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
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• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
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• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
![Page 53: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/53.jpg)
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
![Page 54: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/54.jpg)
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
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P
Q
Plegal
Slegal
Dlegal
QlegalO
The market for an illegal drugThe market for an illegal drug
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P
Q
Plegal
Slegal
Dlegal
Qlegal
Sillegal
O
The market for an illegal drugThe market for an illegal drug
![Page 57: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/57.jpg)
P
Q
Plegal
Slegal
Dlegal
Qlegal
Sillegal
Dillegal
O
The market for an illegal drugThe market for an illegal drug
![Page 58: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/58.jpg)
P
Q
Plegal
Slegal
Dlegal
Qlegal
Sillegal
Dillegal
Pillegal
QillegalO
The market for an illegal drugThe market for an illegal drug
![Page 59: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/59.jpg)
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
– comparison of prohibition and taxation
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
– comparison of prohibition and taxation
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• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
– comparison of prohibition and taxation• effects on demand and supply
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
– comparison of prohibition and taxation• effects on demand and supply
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
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• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
– comparison of prohibition and taxation• effects on demand and supply• effects on price
• Providing goods free to consumers– justification– effects– the case of health care
• problems of shortages• methods of dealing with shortages
• Making products illegal– justification– the market for illegal products
• comparison with legal prices
– comparison of prohibition and taxation• effects on demand and supply• effects on price
GOVERNMENT REJECTION OF MARKET ALLOCATIONGOVERNMENT REJECTION OF MARKET ALLOCATION
![Page 62: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/62.jpg)
Government Intervention in the MarketGovernment Intervention in the Market
Agriculture and Agricultural Policy
Agriculture and Agricultural Policy
![Page 63: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/63.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
![Page 64: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/64.jpg)
Source: National Food Survey 2000 (National Statistics, 2001), extracted from Tables 6.1, 6.3, 6.4 and 6.5
Elasticities of demand for various foodstuffs (UK)Elasticities of demand for various foodstuffs (UK)
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Source: National Food Survey 2000 (National Statistics, 2001), extracted from Tables 6.1, 6.3, 6.4 and 6.5
Elasticities of demand for various foodstuffs (UK)Elasticities of demand for various foodstuffs (UK)
![Page 66: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/66.jpg)
P
Q O
P1
D
Sa1
Inelastic demand for foodInelastic demand for food
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P
Q O
P1
P2
D
Sa1Sa2
Inelastic demand for foodInelastic demand for food
![Page 68: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/68.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
• Causes of declining farm incomes
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
• Causes of declining farm incomes
![Page 69: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/69.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
• Causes of declining farm incomes– low income elasticity of demand
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
• Causes of declining farm incomes– low income elasticity of demand
![Page 70: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/70.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
• Causes of declining farm incomes– low income elasticity of demand
– increases in supply
• Why governments intervene in agriculture– to reduce price fluctuations
– to raise farm incomes
– to protect rural communities
– to encourage greater self-sufficiency in food
• Causes of short-term price fluctuations– fluctuations in the harvest
– low price elasticity of demand
• Causes of declining farm incomes– low income elasticity of demand
– increases in supply
![Page 71: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/71.jpg)
Source: Agriculture in the European Union, European Economy (European Commission)
Yields of selected crops (100 kg/hectare)Yields of selected crops (100 kg/hectare)
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Source: National Food Survey 2000 (National Statistics, 2001), extracted from Tables 6.1, 6.3, 6.4 and 6.5
Elasticities of demand for various foodstuffs (UK)Elasticities of demand for various foodstuffs (UK)
![Page 73: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/73.jpg)
P
Q O
P1
D1
S1
Q1
Decline in food prices over timeDecline in food prices over time
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P
Q O
P1
S2
D2
P2
Q1 Q2
D1
S1
Decline in food prices over timeDecline in food prices over time
![Page 75: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/75.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Types of government intervention in agriculture– buffer stocks
– subsidies
– high fixed prices
– reducing supply
– structural policies
• Buffer stocks– buffer stocks to stabilise prices
• Types of government intervention in agriculture– buffer stocks
– subsidies
– high fixed prices
– reducing supply
– structural policies
• Buffer stocks– buffer stocks to stabilise prices
![Page 76: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/76.jpg)
P
Q O
Pg
D
Qd
Buffer stocks to stabilise pricesBuffer stocks to stabilise prices
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P
Q O
Pg
D
Sa1
Qs1Qd
Bought into buffer stock
Buffer stocks to stabilise pricesBuffer stocks to stabilise prices
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P
Q O
Pg
D
Qs2Qd
Released from buffer stock
Sa2
Buffer stocks to stabilise pricesBuffer stocks to stabilise prices
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Types of government intervention in agriculture– buffer stocks
– subsidies
– high fixed prices
– reducing supply
– structural policies
• Buffer stocks– buffer stocks to stabilise prices
– buffer stocks to stabilise farm incomes
• Types of government intervention in agriculture– buffer stocks
– subsidies
– high fixed prices
– reducing supply
– structural policies
• Buffer stocks– buffer stocks to stabilise prices
– buffer stocks to stabilise farm incomes
![Page 80: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/80.jpg)
P
Q O
D
aP1
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
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P
Q O
D
Y
aP1
Pd = 1
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
![Page 82: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/82.jpg)
P
Q O
D
Sa2
Q2Q1
Sa1
Y
aP1
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
![Page 83: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/83.jpg)
P
Q O
D
Sa2
Q2Q1
Sa1
Y
aP1
P2
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
![Page 84: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/84.jpg)
P
Q O
D
Sa2
Q2Q1
Sa1
Q2
Y
aP1
P2
P2
bc
Bought into buffer stock
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
![Page 85: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/85.jpg)
P
Q O
D
Sa3
Q3 Q1
Sa1
Y
aP1
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
![Page 86: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/86.jpg)
P
Q O
D
Sa3
Q3 Q1
Sa1
Y
aP1
P3
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
![Page 87: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/87.jpg)
P
Q O
D
Sa3
Q3 Q1
Sa1
Q3
Y
aP1
P3
P3
de
Released from buffer stock
Buffer stocks to stabilise incomesBuffer stocks to stabilise incomes
![Page 88: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/88.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Subsidies
– effects on price and output
– the incidence of a subsidy
• Subsidies
– effects on price and output
– the incidence of a subsidy
![Page 89: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/89.jpg)
Effect of subsidies on foodstuffs in which the country is self-sufficientEffect of subsidies on foodstuffs in which the country is self-sufficient
P
Q O
D
Qe
Pe
S
![Page 90: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/90.jpg)
P
Q O
D
Qe
Pe
S + subsidy
S
Effect of subsidies on foodstuffs in which the country is self-sufficientEffect of subsidies on foodstuffs in which the country is self-sufficient
![Page 91: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/91.jpg)
P
Q O
D
Q1Qe
Pe
Pm
S + subsidy
S
Effect of subsidies on foodstuffs in which the country is self-sufficientEffect of subsidies on foodstuffs in which the country is self-sufficient
![Page 92: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/92.jpg)
P
Q O
D
Q1Qe
Pe
Pg
Pm
S + subsidy
S
Sub
sidy
Effect of subsidies on foodstuffs in which the country is self-sufficientEffect of subsidies on foodstuffs in which the country is self-sufficient
![Page 93: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/93.jpg)
P
Q O
D
Q1Qe
Pe
Pg
Pm
S + subsidy
S
Sub
sidy
Effect of subsidies on foodstuffs in which the country is self-sufficientEffect of subsidies on foodstuffs in which the country is self-sufficient
![Page 94: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/94.jpg)
Effect of subsidies on foodstuffs which are partly importedEffect of subsidies on foodstuffs which are partly imported
P
Q O
D
Pw
Sdomestic
Sworld
![Page 95: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/95.jpg)
P
Q O
D
Pw
Sdomestic
Sworld
QS1Qd
Imports
Effect of subsidies on foodstuffs which are partly importedEffect of subsidies on foodstuffs which are partly imported
![Page 96: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/96.jpg)
P
Q O
D
Qd
Pw
QS2
S + subsidy
Sdomestic
Sworld
QS1Imports
Effect of subsidies on foodstuffs which are partly importedEffect of subsidies on foodstuffs which are partly imported
![Page 97: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/97.jpg)
P
Q O
D
QS2Qd
Pw
Pg
S + subsidy
Sdomestic
Sworld
QS1
Effect of subsidies on foodstuffs which are partly importedEffect of subsidies on foodstuffs which are partly imported
![Page 98: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/98.jpg)
P
Q O
D
QS2Qd
Pw
Pg
S + subsidy
Sdomestic
Sworld
QS1
Effect of subsidies on foodstuffs which are partly importedEffect of subsidies on foodstuffs which are partly imported
![Page 99: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/99.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
![Page 100: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/100.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
![Page 101: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/101.jpg)
Minimum price where some of the product is importedMinimum price where some of the product is imported
P
Q O
Pw
EU supply
QS1Qd1
EU demand
Imports
![Page 102: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/102.jpg)
P
Q O
Pw
Pt
EU supply
QS1Qd1
EU demand
Imp
ort
levy
Minimum price where some of the product is importedMinimum price where some of the product is imported
![Page 103: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/103.jpg)
AMOUNT PAIDIN IMPORT
LEVIES
AMOUNT PAIDIN IMPORT
LEVIES
P
Q O QS2
Pw
Pt
EU supply
QS1Qd1
EU demand
Imp
ort
levy
ImportsQd2
Minimum price where some of the product is importedMinimum price where some of the product is imported
![Page 104: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/104.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
![Page 105: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/105.jpg)
P
Q O QS1Qd1
DEU
SEU
Pw
ba
Exports
Minimum prices for a product where the EU is self-sufficientMinimum prices for a product where the EU is self-sufficient
![Page 106: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/106.jpg)
COSTCOSTREVENUE FROMREVENUE FROM
SALE OF SURPLUSSALE OF SURPLUSON WORLD MARKETON WORLD MARKET
P
Q O QS2
Pw
Pi
SEU
QS1Qd2
Qd1
DEU
a bf c
Surplus
NET COSTNET COST
Intervention pricede
Minimum prices for a product where the EU is self-sufficientMinimum prices for a product where the EU is self-sufficient
![Page 107: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/107.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
• Reductions in supply
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
• Reductions in supply
![Page 108: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/108.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
• Reductions in supply
– quotas
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
• Reductions in supply
– quotas
![Page 109: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/109.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
• Reductions in supply
– quotas
– taking land out of use (e.g. set aside)
• Subsidies
– effects on price and output
– the incidence of a subsidy
• High minimum prices
– foodstuffs where the country is a net importer
– foodstuffs where the country is self-sufficient
• Reductions in supply
– quotas
– taking land out of use (e.g. set aside)
![Page 110: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/110.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Justification of the CAP
– assured supplies of food
– support for farm incomes
– growth in agricultural productivity
– stable agricultural prices
– reasonable prices for consumers.
• Justification of the CAP
– assured supplies of food
– support for farm incomes
– growth in agricultural productivity
– stable agricultural prices
– reasonable prices for consumers.
![Page 111: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/111.jpg)
The cost of price and other market support for agriculture in the EUThe cost of price and other market support for agriculture in the EU
Source: Agriculture in the European Union, European Economy (European Commission)
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Criticisms of the CAP
– agricultural surpluses
• static costs
• Criticisms of the CAP
– agricultural surpluses
• static costs
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P
Q O
Pe
S
D
The cost to the taxpayer of high fixed pricesThe cost to the taxpayer of high fixed prices
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P
Q O
Pe
Pi
S
D
Qd Qs
a b
Surplus
The cost to the taxpayer of high fixed pricesThe cost to the taxpayer of high fixed prices
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P
Q O
Pe
Pi
S
D
c
ba
d
Qd Qs
Surplus
COST TOTHE
TAXPAYER
COST TOTHE
TAXPAYER
The cost to the taxpayer of high fixed pricesThe cost to the taxpayer of high fixed prices
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P
Q O
Pe
S
D
Pf
Pc
Subsidy
Q1Q2
a
The cost to the taxpayer of subsidiesThe cost to the taxpayer of subsidies
b
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P
Q O
Pe
Pf
S
D
a
bPc
COST TOTHE TAXPAYER
COST TOTHE TAXPAYER
Q1Q2
The cost to the taxpayer of subsidiesThe cost to the taxpayer of subsidies
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Source: Agriculture in the European Union, European Economy (European Commission)
Unequal support given to different agricultural products in the EU: 2001Unequal support given to different agricultural products in the EU: 2001
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Source: Agriculture in the European Union, European Economy (European Commission)
Unequal support given to different agricultural products in the EU: 2001Unequal support given to different agricultural products in the EU: 2001
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Criticisms of the CAP (cont.)
– irrational relative prices
– removes disciplines of markets
– redistributive effects
– effects on the environment
– effects on the rest of the world
• effects of import levies
• effects of export subsidies
• Criticisms of the CAP (cont.)
– irrational relative prices
– removes disciplines of markets
– redistributive effects
– effects on the environment
– effects on the rest of the world
• effects of import levies
• effects of export subsidies
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Reforming the CAP
– price reductions
– production quotas
– set aside
– diversification; low-intensity farming
– income support
– the MacSharry reforms
• effects on surpluses
• Reforming the CAP
– price reductions
– production quotas
– set aside
– diversification; low-intensity farming
– income support
– the MacSharry reforms
• effects on surpluses
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c
ba
d
P
Q O
P1
S1
D
Original surplus
Qs1Qd1
FARMERS'ORIGINAL INCOME
FARMERS'ORIGINAL INCOME
Effect of the MacSharry reforms on cereal surplusesEffect of the MacSharry reforms on cereal surpluses
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P
Q O
P1
P2
S1
Dc
ba
d
Reduction inintervention
price
Qs1Qd1
Effect of the MacSharry reforms on cereal surplusesEffect of the MacSharry reforms on cereal surpluses
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P
Q O
P1
P2
S1
D
S2
c
ba
d
Effect ofSet-aside
Qs1Qd1
Effect of the MacSharry reforms on cereal surplusesEffect of the MacSharry reforms on cereal surpluses
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a b
c
P
Q O
P1
P2
S1
D
S2
Qs2Qs1
Qd2Qd1
c
ba
d
Reduced surplus
FARMERS'REDUCEDINCOME
FARMERS'REDUCEDINCOME
Effect of the MacSharry reforms on cereal surplusesEffect of the MacSharry reforms on cereal surpluses
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement• proposals
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement• proposals
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AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement• proposals• subsequent events
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement• proposals• subsequent events
![Page 132: Government Intervention in the Market. Government Intervention in the Market The Control of Prices](https://reader033.vdocuments.us/reader033/viewer/2022061610/56649f2b5503460f94c45b4a/html5/thumbnails/132.jpg)
AGRICULTURE AND AGRICULTURAL POLICYAGRICULTURE AND AGRICULTURAL POLICY
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement• proposals• subsequent events
– The 2002 reform proposals
• Reforming the CAP– price reductions– production quotas– set aside– diversification; low-intensity farming– income support– the MacSharry reforms
• effects on surpluses• continuing problems
– Agenda 2000• the issue of EU enlargement• proposals• subsequent events
– The 2002 reform proposals