Question

Questions

a. The most common example of a market with perfect competition is agriculture. How could farm subsidies distort a model of perfect competition? Explain.

b. 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?

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

Answer for a)

Farm subsidies providing in a particular areas may decrease farm rates production in that particular areas and hence they can sell at lower prices that their competitors in another areas and hence this may lead to distort to perfect competition as in perfect competition all sellers incurs same price of selling and cost of producing which is not the case here.

Answer for b)

Here,the corn producers in Mexico hurt as the corn imports from USA increases as it is cheap in USA.Ther are two potential solutions to this farming:

1)Increase the tax import rate in Mexico on the name dumping duties which can equal the cost of production and import.

2)Provide Subsidy for Mexican corn farmers also.

Some of them argue that subsidies will motive farmers and also upcoming generations in food production and also provide relief to the farmers as it reduces cost of production. There are others who argue that subsidies will lead imperfect compition and moreover it will hurt government revenue.

It would stand for subsidies as we see the people who choosing farming field is declining year by year.Hence I think this may make people choose farming and such farming may help the society in food production as well as farmer in revenue generation due to such low costs.