Government farm programs are very controversial since they a

Government farm programs are very controversial since they are designed to assist only the farmers. But many analysts claim that farm programs are examples of binding price floor and serve only few. According to these analysts, these programs costs trillions of dollars and make households bear higher prices at the groceries and high taxes to finance the surplus caused the farm price controls. Therefore, they cause a deadweight loss to society Do you think that the government should end the farm subsidy programs? Identify the pros and cons of your propositions. Also, consider the political, social and economic aspects of the issue.

Solution

The basic aim of subsidy programme is to grant an amount of money to help producers or keep the price of a commodity low . The subsidy programme is different from price floors . Price floors are set above the equilibrium price to prevent the price to fall any further . But in case of subsidy per unit of output , it causes an outward shift of market supply curve . The subsidy helps producers to reduce cost of production and hence supply grows . So the equilibrium price falls and quantity rises . Here the producers gain by increase in quantity demanded due to lower price after subsidy . The consumers also enjoy the products at a lower market price after subsidy .

But there are certain negative aspects too like burden on government funds which may be collected through increased taxes . Budget deficit and increase in subsidy may lead to inflationary pressures in long run . But overall the society benefits since people get products at lower price and producers profits increases .