Farm Policy (Exam 2)

Question 1

2 reasons for government involvement

Answer 1

• Long term decline in agricultural employment (avg. farm size increased, better technology)
• Inelastic nature of agricultural goods

Question 2

Nature of demand in farm policy

Answer 2

• Inelastic

- Increase in supply causes decreases in price and increase in supply traded

Question 3

Subsidy

Answer 3

Program of financial aid and other assistance given to business or industrial sector

Question 4

Price support

Answer 4

• Places legal restrictions on minimum price that can be charged for a good
• Decreases consumer surplus

Question 5

Supply restrictions

Answer 5

• Raise price by placing legal limit on supply of agricultural goods

Question 6

Demand enhancement

Answer 6

• Raise price by increasing demand; generally target low-income groups
• Demand increases, price increases, and quantity increases

Question 7

Income support

Answer 7

• Direct payments to producers of many agricultural commodities; subsidized crop insurance programs; disaster relief

Question 8

implications of support

Answer 8

• Increased incomes
• Increased prices for consumers
• Higher taxes
• Reduced competitiveness
• Inefficient use of resources