agricultural policy - US uses price supports to control domestic market
- gov't sets price at level higher than that of free-market
- gov't buys up any excess quantity that consumers don't buy
- consumers must buy goods at higher price than if there was a free-market
- gov't must spend money to buy up excess quantity of goods
- taxes on consumers/public support this, so ultimately the cost falls on the population
- gov't may try to resell the quantity they buy
- producers sell more >> gain more revenue
- benefit w/o loss
- more efficient to just pay the farmers directly
- this method would still force gov't to pay, but consumers wouldn't be affected
- in this method, note that there are essentially 2 consumers (the public and the gov't)
- maximizes the producer surplus by enhancing their market
- consumer surplus decreases by A+B
- producer surplus increases by A+B+C
- government pays B+C+D
- net effect = producer surplus - consumer deficit - gov't cost = (A+B+C) - (A+B) - (B+C+D) = loss of B+D
- as with most changes, society worse off as a whole
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