DragIT - Intervention in agricultural markets (2)
The Common Agricultural Policy (CAP) has traditionally used high minimum prices as the means of supporting the European farming community.
The following diagram is the same as the one we had before. It shows the demand and supply for wheat in a given country. The world price of wheat is £3 per tonne (shown by the horizontal red line). Given this low price for wheat, domestic production is 15,000 tonnes per annum, yet demand is 35,000 tonnes per annum. As a result this country imports 20,000 tonnes of wheat per annum.
Drag the horizontal red line upwards to represent the setting of a high minimum price that would result in the country now having a surplus of 10,000 tonnes of wheat per annum (a surplus that is then exported).
1 |
Import tariffWhat will be the revenue of domestic wheat farmers before the policy change? |
2 |
Import tariffWhat will be the price charged after the policy change? |
3 |
Import tariffWhat will be the revenue of domestic wheat farmers after the policy change? |
4 |
Import tariffHow much has consumer expenditure on wheat risen by? |
5 |
Import tariffAssume that as a result of the policy, the world price of wheat has fallen to £2 per tonne, and that the government buys any surplus and then exports it at the world price. What will be the taxpayers contribution to this policy? |