Economics
Price Support
Price support refers to government intervention in the market to maintain the price of a particular commodity at a certain level. This is often achieved through measures such as subsidies, tariffs, or quotas. Price support is typically implemented to protect the income of producers and ensure a stable supply of the commodity.
Written by Perlego with AI-assistance
Related key terms
1 of 5
4 Key excerpts on "Price Support"
eBook - PDF- David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
The federal minimum wage yields an annual income for a single person of $15,080, which is slightly higher than the Federal poverty line of $11,880. Congress periodically raises the federal minimum wage as the cost of living rises. As of March 2022, the most recent adjustment occurred in 2009, when the federal minimum wage was raised from $6.55 to $7.25. Price floors are sometimes called “Price Supports,” because they support a price by preventing it from falling below a certain level. Around the world, many countries have passed laws to create agricultural Price Supports. Farm prices and thus farm incomes fluctuate, sometimes widely. Even if, on average, farm incomes are adequate, some years they can be quite low. The purpose of Price Supports is to prevent these swings. The most common way Price Supports work is that the government enters the market and buys up the product, adding to demand to keep prices higher than they otherwise would be. According to the Common Agricultural Policy reform effective in 2019, the European Union (EU) will spend about 58 billion euros per year, or 65.5 billion dollars per year (with the December 2021 exchange rate), or roughly 36% of the EU budget, on Price Supports for Europe’s farmers. Figure 3.22 illustrates the effects of a government program that assures a price above the equilibrium by focusing on the market for wheat in Europe. In the absence of government intervention, the price would adjust so that the quantity supplied would equal the quantity demanded at the equilibrium point E 0 , with price P 0 and quantity Q 0 . However, policies to keep prices high for farmers keep the price above what would have been the market equilibrium level—the price Pf shown by the dashed horizontal line in the diagram. The result is a quantity supplied in excess of the quantity demanded (Qd). When quantity supplied exceeds quantity demanded, a surplus exists.
eBook - PDF- Bansil, P C(Authors)
- 2021(Publication Date)
- Daya Publishing House(Publisher)
Agricultural Price Policy aims at reducing the unduly large fluctuations in the prices of agricultural products, and the risk of loss to the producer would be minimized even in the event of an exceedingly good harvest. The policy of fixing the minimum guaranteed support prices can go a long way in creating a favourable climate for inducing the farmer to augment his investment in agriculture and to adopt improved technology. At the minimum support prices, Government undertakes to purchase all quantities offered to it so that the prices of agricultural produces do not fall below a specified level. The minimum support prices policy becomes essential in two ways; firstly it acts as a psychological incentive to the cultivator that his efforts in increasing production will not go in vain, and the level at which minimum prices are fixed also plays an important part in encouraging the farmer to undertake investment in improved technology. To reiterate the main objective of price policy for agricultural produce are aimed at ensuring remunerative price to the growers for their produce with a view to encouraging higher investment and production and to safeguard the interests of the consumers by marketing available supplies at reasonable prices. The price policy seeks to evolve a balanced and integrated price structure in the perspective of the overall needs of the economy. The National Commission on Agriculture (NCA), 1976 expressed that the agricultural price policy should keep in view its impact on the general price situation and on the economy as a whole. It should be in consonance with the country’s overall economic policy and facilitate growth with stability. The major aim of agricultural price policy should be to correct distortions which are in general socially or economically harmful and which emerged from time to time because of the imperfections of the market mechanism.
eBook - PDFInternational Agricultural Trade
Advanced Readings In Price Formation, Market Structure, And Price Instability
- Andrew Schmitz, Gary Storey(Authors)
- 2019(Publication Date)
- CRC Press(Publisher)
Part II Market Structure and Institutions in International Agricultural Trade 5 Price Supports in the Context of International Trade Peter Berek and Andrew Schmitz INTRODUCTION Price Supports have been commonplace in agricultural policy for the last five decades. Their effects have also been analyzed in several studies. For example, Wallace (1962), using a welfare economics framework, concluded that the Price Support programs proposed by Cochrane and Brannan lead to welfare losses. Omitted from Wallace's analysis, however, are important policy instruments such as acreage controls, and government-held stocks. Also, studies of the effects of price instability and the use of policy instruments to deal with it (for example, the early work by Massell) have major shortcomings in that they only incorporate storage policies as policy instruments; also these studies exclude price uncertainty. Lastly, Schuh (1974), shows how an overvalued exchange-rate influences the need for government policies such as Price Supports (e.g., an overvalued exchange rate reduces farm income since prices are depressed; hence, the need for Price Supports). This analysis, however, does not consider how the growth in the export component of U. S. agriculture can affect the choice and effectiveness of domestic policy instruments aimed at supporting farm income. This paper develops a model which incorporates Price Supports in an uncertain environment. The international trade sector is incorporated explicitly as are such policy instruments as farmer-held reserves. We demonstrate that the choice of policy changes as the volume vrhich a country exports expands. Peter Berek and Andrew Schmitz, Department of Agriculture and Resource Economics, University of California, Berkeley. 127 128 A THEORETICAL FRAMEWORK Traditional evaluations of agricultural stabilization programs do not clearly distinguish between decisions taken before and after the state of nature is known.
- R. Albert Berry(Author)
- 2019(Publication Date)
- Routledge(Publisher)
S. Department of Agriculture, Economic Research Service, Technical Bulletin 1384, November 1967. 2 1. T. Bonnen, The Distribution of Benefits from Selected U.S. Farm Programs, Rural Poverty in the United States: A Report of the President's National Advisory Commission on Rural Poverty (Washington, D. C., 1967), pp. 461-505. 3 c. L. Schultze, The Distribution of Farm Subsidies, A Staff Paper (Washington, D. C.: The Brookings Institution), 1971. 4 R. M. Lidman, ''The Distribution of Benefits of Major Agricultural Programs (Unpub-lished Ph. D. dissertation, University of Wisconsin, 1972). CONSEQUENCES OF AGRICULTURAL Price SupportS 205 tribution arising from Price Supports followed by a brief description of the data. The counterfactual question posed is which income groups would benefit and which would lose if domestic crop prices were brought into line with either un-adjusted or adjusted international values? Since abandonment of the Price Support program (though not necessarily its stabilization aspects) would involve a change in the efficiency of resource allocation, this effect is analyzed in a subsequent sec-tion. A final section summarizes the results and discusses some indirect effects of Price Supports which must be considered in an overall evaluation of such programs. 2. THE DEVELOPMENT OF COLOMBIAN Price SupportS Protection of Colombian agriculture dates from the depression of the 1930s when tariff legislation was introduced which sharply raised import duties on all agri-cultural products. 5 Subsequently, rigid import quotas were applied to basic food-stuffs both during and after World War II. In 1944 a semi-official marketing agency, INA (Instituto Nacional de Abastecimiento), was established for the purpose of setting minimum prices for rice, com, beans, and wheat. As part of an overall im-port substitution strategy of economic development, the avowed goal of INA was self-sufficiency in agricultural production.
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
