Presentation on theme: "The Economics of Food Markets Price/Quantity Allocation and Welfare Effects of Export Tax. Eg. Thailand’s Rice Market Tutorial: 27 th November 2007."— Presentation transcript:
The Economics of Food Markets Price/Quantity Allocation and Welfare Effects of Export Tax. Eg. Thailand’s Rice Market Tutorial: 27 th November 2007
Export Taxes and Thailand Large producer with surpluses of rice Unlike many countries who must import a lot of their consumption needs, Thailand generates foreign exchange by exporting rice. But dependence on rice has posed problems due to unstable world prices: –Rice represents large portion of national income –It’s the staple food for consumption Government has tried to protect economy from price fluctuations by imposing tax on exports.
Price (i) Effects of Export Tax on Thai Rice: Elastic Supply DdDd Export Supply International Demand Exports Pw QuantityeQsQd QdQd e’ PtwPtw PtdPtd QtdQtdQtsQts AC B D E F
Elastic Supply of Thai Rice Before export tax: world price = domestic price = Pw Producers supply Qs & Consumers demand Qd After export tax: Domestic supply falls (Qs to Q t s) because producers bear part of tax, receiving a lower price, P t d. Producer surplus falls by A+B+C Consumers benefit from increased consumption (Qd to Q t d) and increased consumer surplus of A+B Conclusion: Domestic producers lose and domestic consumers gain.
A large part of the cost of the tax is borne by foreign customers who pay higher price Producers effectively pay part of tax also by receiving lower domestic price, P t d. Total government revenue = E + F Decline in economic efficiency represented by deadweight loss triangles B+D. Elastic Supply of Thai Rice
Price (ii) Effects of Export Tax on Thai Rice: Inelastic Supply DdDd Export Supply International Demand Exports Pw Quantitye SdSd PtdPtd PtwPtw QdQtdQtd QtsQts Qse’ E FAC B D
Elastic Supply vs Inelastic Supply Thailand is a large global producer of rice －＞ domestic supply affects export supply When supply is more inelastic, the size of deadweight loss D, is less. Why? Because domestic producers are less inclined to reduce supply. Conclusion?