ECON 101 Lecture Notes - Lecture 6: Price Support, North American Free Trade Agreement, Ad Valorem Tax
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Econ 101 lecture 6 markets in action con"t: agriculture and the farm problem, long and short run problems i. The problems: short term- farm prices (income) fluctuate tremendously, long term- farm income falls relative to urban incomes ii. The solutions: stabilization = eliminate the fluctuations in prices, support/rehab = raise farm incomes, analogy: if the patient is sick, you first stabilize the patient and then you try to rehabilitate, short run price fluctuations i. The problem: prices are volatile: a sudden change in s and an inelastic d p volatility, poor substitutes inelastic d also p volatility, unplanned changes in s is due to exogenous factors. Income fluctuates in the same direction as p ii. Increasing domestic supply - high productivity and technological change cause s to increase and curve shifts right. Lagging domestic demand - low income elasticity of demand for food causes only small increase in d as income rises.