Advantages
· Supporting farmers incomes - because farmers have low incomes
· Decreasing income inequality – because rural areas have lower incomes
· Reducing rural-urban migration – because urban areas have higher unemployment and lower living standards due to population density
· Decreasing price instability in agricultural markets – due to weather and other random factors
Disadvantages
· Higher prices for food, which is a necessity
· Overproduction of farm products – misallocation of resources – because to much land is used for agriculture
· Increased government expenditure – requires higher taxes or government borrowing.
· Opportunity costs in financing scheme – because spending on other goods must be foregone
At a price of $10 only 5m Kg per month will be bought (demanded) while at the high
price of $10 the suppliers will supply 8m Kg of the good.
· Destroy the surplus
· Store for future use
· Export abroad at a lower price
· Overseas food aid
· Purchasing the surplus (government)
· Providing food banks or low income families with rationed surplus
Funds used on purchasing the surplus could have been used to finance education, health services or those taxes for citizens will have to be higher or (increased) borrowing penalizes (or burdens) future generations.
At the equilibrium price of $8 there will be 6m Kg demanded and supplied, but when the Price Floor raises the price to $10 the Qd will fall to 5m Kg, a decrease of 1m Kg.
ginal Spending = $8 x 6m Kg = $48m (at Equilibrium before Price Floor)
New Spending = $10 x 5m Kg = $50m (after Price Floor)
Increase of $2m
No comments:
Post a Comment