Public Policy in Food and Agriculture

Question: Discuss about the Public Policy in Food and Agriculture. Answer: Introduction: In economics, the income elasticity of demand and the cross-price elasticity of demand are two important concepts. The income elasticity of demand is the proportion of change between the demand of a product and the income level of end user. It measures the correlation between a change in required quantity and a change in consumers income (Hall and Lieberman, 2007). Along with this, the income elasticity of demand can be used to decide whether a good is a normal good or an inferior good. According to this, a normal good has an optimistic income elasticity of demand. For example, when the demand of a product boosts with an increase in the income level and declines with decrease in income level, then it provides a positive value for the income elasticity of demand. A positive income elasticity of demand points towards a normal good. Apart from this, an inferior good has a pessimistic income elasticity of demand. For case, when the demand of a good declines with an increase and amplifies with a decrease in the income level, in that case the demand is negative and the good would be considered as an inferior good (Frank, Jennings and Bernanke, 2012). On the other hand, the cross-price elasticity of demand is the receptiveness of demand for a good or service to a change in the value of the other good or service. The cross-price elasticity of demand also can be used to find out whether two goods are substitutes or complements. According to the cross-price elasticity of demand, substitute goods have a positive cross-price elasticity of demand while complements goods have a negative cross-price elasticity of demand. For example, when the price of one good raises and the demand for another good enhances, then the both goods are substitute goods. Apart from this, when the price of a product increases and the demand for the other product decreases, in that case both goods are complement goods (Besanko and Braeutigam, 2010). In this way, it can be assumed, both income elasticity of demand and the cross-price elasticity of demand are two important terms in the field of economies. In economics, a production possibility curve (PPC) is a curve that represents all the possible permutation of two goods with secure resources as well as technology. In other words, it also can be said that, the production possibility curve is an important model of scarcity as well as efficiency. The model plays a significant role to explain that how the economy of a nation may produce two products only by taking two goods into consideration (Rittenberg, 2008). Along with this, this visual model illustrates all the production possibilities that a nation has between two goods. The model mainly focuses on the concept of opportunity cost in order to provide the best economic decision to a nation or producer. The PPC states that all the inputs must be used proficiently to produce all the possible things through these two goods. In addition to this, it should also be noted down that, a bowed PPC curve points out that the trade-off between the two goods is not stable. Moreover, the PPC curve bows outwards as a consequence of the law of increasing opportunity cost. In other words, it also can be said that, a bowed outward PPC curve takes place at what time additional units of output of a good require larger declines in another good (Ross, Westerfield and Jordan, 2012). The notion of comparative advantage plays a major role in the production possibility curve. It is because of with the help of comparative advantage, a produce becomes able to choose a better product in place of the other product. An example of drainpipes and butter would be very helpful to understand the role of comparative advantage in PPF curve. In the context of economics, several resources are more proficient in order to produce one product in preference to another product. Metalworkers are more capable to produce drainpipes whereas farmers are more competent to produce butter (Berk, 2012). Along with this, if the economy of a nation is willing to produce drainpipes then it will use both metalworkers as well as farmers in the production process. In contrast, if the economy is willing to produce butter then it will use farmers instead of metalworkers. A low opportunity cost is the main reason behind it. It is because of the farmers can offer comparative advantages to the economy of a nation. On the other hand, if the economy of a nation is willing to produce more butter then it will take metalworkers into consideration. This shift of metalworks into farming industry will create big loss in drainpipes and small profits in butter. It is because of the metal workers has a comparative advantage in the production of drainpipes (Gitman, Juchau and Flanagan, 2010). As a consequence, the opportunity cost of added butter will be big because of the economy of a nation is willing to produce butter in place of drainpipes. In this case, the PPF curve will bow outward because of the p roduction of butter will reduce the production of drainpipes. It is true that, in the field of economics, the long-run market supply curve for a perfectly competitive industry depends on factor prices. For example, the long-run supply curve for a perfectly competitive industry depends on the different types of factor prices because of increase or decrease in the long run as a result of expansion of the output of the industry. In addition to this, the long run market for a perfectly competitive industry confirms that the firms have decrease, constant, and increasing cost (Booth, Cleary and Drake, 2013). Along with this, the long run market supply curve for a perfectly competitive industry also reflects and represents different quantities of good by which all the firms in the industry along with each other would be willing to supply at different prices when the industry is in the long run equilibrium. This situation is show the reaction of whole industry to change in the factor price when all the demand induced changes are taking into considerati on. On the other hand, it is also important to know that, the long run market supply curve in a perfectly competitive industry is also represents a set of price as well as the amounts. In the same way, the prices would be same or equal to the minimum average full costs of the firms. At the same time, the amounts are the equilibrium output of the industry at the each price. Along with this, the long run market supply curve in a perfectly competitive industry may be horizontal positively sloped or negatively sloped. It is because the long run market supply curve depends on the external diseconomies as well as economies (Brigham and Houston, 2013). Hence, on the basis of above analysis, discussions and facts, it can be said that, the long-run market supply curve for a perfectly competitive industry depends on factor prices. In the context of economics, price ceilings and price floors are two important price control tools. In other words, it also can be said that, both price ceilings and price floors are the major examples of government intervention and also play a significant role in order to change the market equilibrium. Along with this, price ceilings refer as the maximum prices of meticulous goods and services that are set by the government of the nation (Azzam, 2009). Moreover, price ceiling becomes a subject of problem at what time the government set them below the market equilibrium price. In contrast, price floors refer as the minimum prices of particular goods services. Price floors are the subject of concern while they are situate above the equilibrium price. On the other hand, price ceilings and price floors are similar to taxes. Price ceilings are close to taxes on producers. It is because of price ceilings play a major role in order to transfer the surplus of producers to consumers. They shrink surplus of producers and shift it to others. As a result, they turn out to be taxes to producers and subsidies to consumers (Brealey, Myers and Marcus, 2012). In the same manner, price floors akin to taxes on consumers. It is because of price floors condense surplus of consumer and also transfer it to producers. As a consequence, price floors are taxes on patrons and subsidies to manufacturers. For this reason, both are like taxes as they produce distortions from market equilibrium. Apart from this, they bore are also different from taxes. It is because of both price ceilings and price floors generate surpluses while taxes do not create surpluses. Moreover, taxes also give profits to government whereas price ceilings and price floors do not gran t proceeds to government (Ross, Westerfield and Jaffe, 2012). Consequently, it can be assumed that, they both are different from taxes. References Azzam, A. (2009). Public Policy in Food and Agriculture. USA: EOLSS Publications. Berk, D. (2012). Corporate Finance: The Core, 3rd Edition. Australia: Pearson Education. Besanko, D. and Braeutigam, R. (2010). Microeconomics, 4th Edition. UK: John Wiley Sons. Bodie, Z., Kane, A. and Marcus, A. (2010). 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