3 Questions In Economics Term paper

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1. Would the US economy be better off without government intervention in agriculture? Who would benefit? Who would lose?

2. Are large price movements inevitable in agricultural markets? What other mechanisms might be used to limit such movements?

3. Farmers can eliminate the uncertainties of fluctuating crop prices by selling their crops in "futures" markets(agreeing to a fixed price for crops to be delivered in the future). Who gains or loses from this practice?

The US economy would be not better off without government intervention in agriculture. However, it would not be worse off, either. The US economy as a whole would not be impacted with or without government intervention in agriculture. According to the chapter, it seems that farm prices depend on the economy and not the other way around. Farm prices are dependent, either on Congress setting a price floor through subsidies like set asides and government stockpiles, or to market conditions when there is no government condition. Because of technological advances in agriculture, there are currently less US farmers producing more agricultural products. When government intervention is reduced, as it was in the late 1980 s and early 1990 s, US agricultural prices behaved closer to the market mechanism. However, the market mechanism is prone to corrections and outside influences. Because there are less people in the US directly dependent on the health of the agricultural sector of the US economy, less people would be directly affected with ups and downs of a lassaiz-faire agricultural market. The agricultural market took a downturn at around 1997 when the economies of Asian nations were in trouble. When these nations were in trouble, they were less willing and able to purchase US agricultural products. They reduced the demand for these products while the supply was high; therefore the prices of these products were lower. Hence farmers incomes were lower and they were facing trouble. Luckily for the US farmers, this happened during an election year and Congress bailed them out. However, the US economy was not impacted by the health of the agricultural sector or the US government s intervention to save it. The US farmers benefited from this action, but the rest of the US did not necessarily benefit or decline as a result. Because prices tended to be stabilized by government intervention, a farmer s income would be more stable as a result. However, US taxpayers do feel this pinch as they end up paying to bail out farmers in times of crisis, since it is Congress who helps farmers in times of crisis and Congress gets this help from taxes on the American public. The consumer does lose an opportunity cost of buying agricultural goods at low market prices when the agricultural market is in recession if the government sets a price floor for agricultural goods. The US economy, however, is not hurt by this government intervention and the consumers lost opportunity cost. The necessity of government intervention to help farmers during a recession in the agricultural market may be indicative of trouble ahead for the US economy.

Without any kind of outside supply stabilizing influence, large price movements are inevitable in agricultural markets. The supply of agricultural produce depends on many factors, among which are demand for the product, technology, weather. The Law of Supply states that the higher the supply of a product, the lower the price. Conversely, the Law of Demand states the greater the demand for a product, the higher the price of that product will be. Technological advances in agriculture...

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