Question

Suppose Japan is a small rice importer. At the world free trade price, Japan’s domestic production of rice is Q1. In autarky, Japan’s domestic production of rice will be Q2. The Japanese government believes that to preserve Japanese rice growing culture, the domestic rice production should be at Q3 and Q1<Q3<Q2.

1. Propose three different policies that will be able to achieve the policy goal of having domestic rice production at Q3.
2. Rank the three policies by their impact on national welfare. Support your argument with graphs and detailed analysis.

Answer 1

Ways to increase the production of rice in japan are :-

1) Increase in import tariff :-

In the graph below S2S2 is the Supply Curve of Domestic production of rice plus imports , if the prices are increased due to import tariffs the they will curtail their supply from the Japanese markets , thus shifting the supply curve leftwards

2) Subsidies to domestic farmers :-

Similarly if the government provides subsidies to the local producers , they will be induced to produce more due to low cost of production thus shifting the supply curve rightward to S3S3

3) Consolidation of small farmlands into agriculture cooperatives :-

Consolidation of holdings will lead to complete mechanisation of agriculture as the cost of mechanisation in small farms are very high . This technological development will help to increase productivity, lowers the cost of production and helps to take advantage of economics of scale .