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Published byAvery McBride Modified over 10 years ago
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AGRICULTURE AND AGRICULTURAL POLICY Subsidies – effects on price and output – the incidence of a subsidy – Subsidy is an amount paid for every unit produced. It reduces the cost to the farmer of supplying the good and moves the supply curve down and out.
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Effect of subsidies on foodstuffs in which the country is self-sufficient 1 P QO D QeQe PePe S
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Effect of subsidies on foodstuffs in which the country is self-sufficient P QO D QeQe PePe S + subsidy S
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Effect of subsidies on foodstuffs in which the country is self-sufficient P QO D Q1Q1 QeQe PePe P1P1 S + subsidy S Note at P e farmers willing to supply Q 2, But then Supply exceeds demand Q2Q2 so price must fall to P 1
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Effect of subsidies on foodstuffs in which the country is self-sufficient 2 P QO D Q1Q1 QeQe PePe PgPg P1P1 S + subsidy S Subsidy
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Effect of subsidies on foodstuffs in which the country is self-sufficient P QO D Q1Q1 QeQe PePe PgPg P1P1 S + subsidy S Subsidy Note two parts to the subsidy in this example: 1.Getting higher price P g 2.But also selling more, S 1 Depends on p D
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Effect of subsidies on foodstuffs which are partly imported P Q O D PwPw S EU S world
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Effect of subsidies on foodstuffs which are partly imported P Q O D QdQd PwPw S EU S world QS1QS1 Imports
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Effect of subsidies on foodstuffs which are partly imported P Q O D QdQd PwPw S + subsidy S EU S world QS1QS1
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Effect of subsidies on foodstuffs which are partly imported P Q O D QS2QS2 QdQd PwPw S + subsidy S EU S world QS1QS1 Imports
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P Q O D QS2QS2 QdQd PwPw PgPg S + subsidy S EU S world QS1QS1 Effect of subsidies on foodstuffs which are partly imported
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P Q O D QS2QS2 QdQd PwPw PgPg S + subsidy S EU S world QS1QS1 Effect of subsidies on foodstuffs which are partly imported
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