Table of Contents
Why does the government provide agricultural price support?
Since the 1930s the United States and Canada have operated agricultural price-support programs. The intent has been multifaceted, but primarily the purpose has been to manage agricultural output levels in order to increase the price per unit and thereby raise the net income of farmers.
Why does the government regulate prices?
In order to protect the interest of consumers government fixes the maximum price of the commodity. This maximum price is generally lower than the equilibrium price. This is called control price or ceiling price. This situation arises when the production of a commodity is less than its demand.
Why is pricing important in agriculture?
The rationale of input pricing policy is to provide production incentives to encourage adoption of new technology and greater investment by farmers. It is argued that high output prices may be diverted to consumption rather than investment expenditure.
What is price control in agriculture?
The subsidies provide a price floor (or a minimum price in which farmers can be reimbursed for certain products). This is a significant economic policy of price control to ensure farmers have proper incentive and revenues to continue to produce at the level of goods desired by the U.S. government.
Why does the government place price ceilings such as rent control on some essential goods?
Price ceilings are enacted in an attempt to keep prices low for those who demand the product—be it housing, prescription drugs, or auto insurance. But when the market price is not allowed to rise to the equilibrium level, quantity demanded exceeds quantity supplied, and thus a shortage occurs.
Why would the government impose such a price floor?
Governments use price floors to keep certain prices from going too low. A related government- or group-imposed intervention, which is also a price control, is the price ceiling; it sets the maximum price that can legally be charged for a good or service, with a common government-imposed example being rent control.
What happens when the government imposes a price floor?
When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result. When government laws regulate prices instead of letting market forces determine prices, it is known as price control.