American rice producers have extremely high production costs, due to some structural prob-
lems. Therefore, if not supported by the government, they will not be able to compete with
foreign producers. Analyze two supportive policies intended to maintain domestic rice produc-
ers: (1) a per-pound subsidy to farmers for each pound of rice produced, or (2) a per-pound
tari on imported rice. Assume that the world market price is below the domestic equilibrium
price and in either policy government only wishes to make sure that producers will receive
this price. Illustrate with supply-and-demand diagrams the equilibrium price and quantity,
domestic rice production, government revenue or decit, and deadweight loss from each policy.
Which policy is the government likely to prefer? Which policy are farmers likely to prefer?
American rice producers have extremely high production costs, due to some structural prob-
lems. Therefore, if not supported by the government, they will not be able to compete with
foreign producers. Analyze two supportive policies intended to maintain domestic rice produc-
ers: (1) a per-pound subsidy to farmers for each pound of rice produced, or (2) a per-pound
tari on imported rice. Assume that the world market price is below the domestic equilibrium
price and in either policy government only wishes to make sure that producers will receive
this price. Illustrate with supply-and-demand diagrams the equilibrium price and quantity,
domestic rice production, government revenue or decit, and deadweight loss from each policy.
Which policy is the government likely to prefer? Which policy are farmers likely to prefer?
