Question

1. Written and Oral Communication—Assess the economic behavior of persons under different economic structures; Describe significant historical developments that have shaped microeconomic behavior in the US.
2. Critical Analysis and Reasoning—Apply economic principles in the analysis of at least one contemporary microeconomic issue
3. Information Literacy—Conduct research on a current microeconomic topic approved by the instructor using library databases and scholarly business periodicals.
4. Scientific and Quantitative or Logical Reasoning—Evaluate the impact of market and non-market forces on supply and demand.
5. Personal and Professional Ethics—Assess the social economic consequences of the global economy on microeconomic behavior in the US.    you are going to examine an important policy issue: farm subsidies. Respond to the questions on the next page with proper application of economic theory in a minimum of three substantive paragraphs per question, and your answers to all of the questions in total should include a minimum of 1,500 words.

   Questions

6. The most common example of a market with perfect competition is agriculture. How could farm subsidies distort a model of perfect competition? Explain.
7. American corn farmers receive billions of dollars in taxpayer subsidies each year. These subsidies allow them to sell their grain at prices below what it costs to produce it, particularly for export markets. How do U.S. corn subsidies hurt Mexican farmers? What could be done to address this problem, and why would the solution be effective?
8. Summarize the arguments both in favor of and against eliminating farm subsidies. After your evaluation, where do you stand on this issue and why?

Answer 1

vi) as we know subsidies affects the distribution of income as well as price and employment as well. as firms gives more subsidies to there respective producer they starts moving from a perfect competitive situation and becomes a monopoly mainly in world market. as the cost of production starts to decline in the firm where subsidies are being given they can now charge a price much lower than the world price to drive competitions out of the market. this is the way subsidies affect a perfect competitive agricultural market also.

vii) as i have explained subsidies has trade distortion effect it will harm the countrys import competing industries where subsidies are not being given. as the price of the subsidies receiving countrys(america) price will be much below the price of mexican farmers there produce will not be sold in there home country as well as in the world market which will put presure on the respective import competing firms. the best solution to this problem is prohibitive tariff by mexcan countrys government. this will be effective as it will raise the americans corn price in mexico much more than there actual price.

viii) after taking into consideration both possitive and negative effects of firm subsidies we can conclude that firm subsidies are good if the producing firm has more possitive externality than negative effect of subsidies.