Theme 2 Flashcards
What is the Policy Analysis Matrix (PAM) used for?
PAM is used to assess the economic efficiency and impact of agricultural policies.
What are the main components of PAM?
The main components are private profitability, social profitability, divergences, and policy effects.
What does private profitability indicate in PAM?
It reflects the profit from an activity considering market prices and without accounting for taxes, subsidies, or externalities.
What does social profitability represent?
It shows the profit from an activity when measured at social prices, accounting for market distortions and externalities.
What are divergences in PAM?
Divergences refer to the differences between private and social prices caused by market distortions like taxes and subsidies
What are shadow prices?
Shadow prices are adjusted prices that reflect the true economic value of goods and services by incorporating externalities and removing market distortions.
How are market divergences reconciled in PAM?
They are reconciled by adding or subtracting the value of market instruments and externalities to the market price.
