Assignment 2 W19 (1)

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Brigham Young University, Idaho *

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410

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Economics

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Feb 20, 2024

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Agbus 410 Assignment 2 1. The Corn Laws protected British grain production through the use of tariffs (and other restrictions on imports) keeping domestic prices higher than world prices. In the figure below, the world price is £3.00 per bushel. a. Calculate the consumer and producer surplus for Britain at the world price. b. If imported grain is levied a tariff of £2.00 per bushel, what will be the domestic price and the new consumer and producer surpluses? c. Is this a pareto optimal improvement? If not, who benefits, who loses, and could winners compensate losers? d. Is there deadweight loss and if so, how much is it? Price (£ per bushel) 5.00 25 Wheat (millions of bushels)

2. As an attempt to raise Federal revenue, taxes were imposed on whiskey production (a value- added corn industry) during the early history of the US (1791-94). This prompted a tax rebellion among small farmers. Corn producers argued that the tax could not be easily passed on to consumers and they would bear most of the incidence. Consider a representation of this historical event below. a. If corn producers are correct, which demand curve would apply? Explain and justify your answer. b. Which demand curve will generate the most tax revenue? Why? Calculate the difference. c. Which demand curve has the smallest deadweight loss? D1 D2

3. The following graph shows the market for apples. Assume the government uses a loan rate scheme that sets a fixed price of $10 per crate. a. With no government intervention, what will be the price and quantity? b. With no government intervention, what will be the CS and PS? c. With the government intervention, how much will be produced and consumed? How much will the government purchase? d. Calculate the new CS and PS with government intervention. What will be the cost to the government? e. Is there a DWL? If so, calculate it (and identify it on the graph above)? 4 2 38

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4. Suppose that the government combines the above loan rate scheme with a required set-aside program, as identified below (to keep it simple, the effects are approximated with a piece-wise linear set-aside supply line). a. With the set-aside program, how much will be produced and consumed? How much will the government purchase? b. Calculate the CS and PS with the set-aside program. What will be the cost to the government? c. Is there a DWL? If so, calculate it (and identify it on the graph above)? Compare this outcome to that in problem where no set-aside program was included. d. Identify the area that represents the additional surplus received by firms supplying inputs to agriculture. 5. For this question, use the 1985 farm bill rules. a. Calculate the program payment resulting from the total effect of a Deficiency Payment and a Findley Emergency Compensation Payment assuming the following prices: Target Price = $3.00 Basic Loan Rate = $2.50 Market Price = $2.75 Findley Loan Reduction = $1.75. b. Determine the producer payment made on established USDA yields and base acres after the acres are reduced by required ARP levels. Use the 1987 ARP level of 20 percent. Also assume a 1000-acre base with a 100 bushel established yield. 34 7 2 Simplified Set-Aside Supply Curve

6. Calculate the Direct and Counter-Cyclical Payment under the 2002 Act, if any, for the 2005 production year, for the crops in the table (Note not all numbers will be used in every calculation.) The season average marketing price is $0.66 per pound for cotton, $2.00 per bushel for corn and $1.50 per bushel for sorghum. a. Cotton Direct Payment = _____ b. Corn Direct Payment = _____ c. Sorghum Direct Payment = _____ d. Cotton Counter-Cyclical Program Payment = _____ e. Corn Counter-Cyclical Program Payment = _____ f. Sorghum Counter-Cyclical Program Payment = _____ 7. Using the 2002–07 table values, if corn posted county price at harvest was $1.75 per bushel, what would the LDP be worth per bushel? 8. What would the LDP be for cotton if harvest posted county price were $0.50 per pound?

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