• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Discuss whether payment of government subsidies to farmers is a beneficial policy [12]

Extracts from this document...

Introduction

Transfer-Encoding: chunked ´╗┐Discuss whether payment of government subsidies to farmers is a beneficial policy [12] The term subsidy refers to a monetary benefit being granted by the government to certain suppliers of a product. These benefits usually take the form of non-refundable grants, but can also be tax reductions, tax deductions or tax refunds. Subsidies are usually implemented as a means of relieving some form of burden from the producers. This can be done either to lower the price of a product in order to promote consumption, particularly in the case of merit goods, or to help increase profits for the producers in order to promote reinvestments of retained profit and economic growth. As such, subsidies can help struggling domestic producers compete with foreign producers, they can help incentivise new businesses to set up in previously underdeveloped industries by lowering barriers to entry and they can help better assure an adequate supply of essential goods and services such as healthcare which might be less profitable than other industries without the help of government subsidies. ...read more.

Middle

Furthermore, a stable currency would help increase the availability of credit which makes it easier for entrepreneurs to set up start-ups which also helps increase the economic growth rate. Another potential benefit of subsidies can be the fact that by lowering costs of production for agricultural goods, the government can assure lower prices for an essential product such as food. This then goes on to allow for better living conditions as people have to spend a lower proportion of their income on food and as such can spend more on satisfying their other needs and wants. Thus, through the use of subsidies the government can help increase the competitiveness of domestic farmers, strengthening the balance of trade, lowering unemployment and incentivising investments, while also helping lower the prices of food and similar essential goods which then leads to an improvement in the living conditions. However, there are certain drawback associated with the use of subsidies. ...read more.

Conclusion

Thus, while subsidies can have many potential benefits for the economy, they come with a high opportunity cost which must be taken into account, they will raise the tax burden which can slow economic growth and they end up interfering into the free market which can hurt the price mechanism?s ability to effectively dictate the allocation of resources. Overall, I believe that subsidies to farmers can be very beneficial to the economy, however, this would only be the case if the price elasticity of demand for agricultural goods is kept high in order to assure maximum benefit to the consumers from the lowered costs of production. The subsidies can also be highly effective at growing the economy, however, the government should regulate the spending of the grants in order to assure that they are spend appropriately on factors that would help improve the competitiveness of the industry such as capital goods, rather than simply being used to create a flat decrease in the cost of production. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. The Importance of the Canadian Airline Industry.

    PWA went on to buy out Wardair, which catapulted it to Canada's second largest airline and put it in direct competition with Air Canada, resulting in a duopoly such as the one with which the decade had begun (Goldenberg 43).

  2. Is the Government to Blame for Higher Petrol Prices?

    as this would truly reflect the cost to society of consuming petrol and remove the negative externalities. By doing this as can be seen in the diagram Price rises and Quantity Demanded/Supplied falls. This means less of the harmful good is consumed.

  1. what is economics

    pay a price above what the producers are normally willing to accept * If we go back to the previous table and suppose that the producer has a baseline price of ´┐Ż350 per holiday: o This is what, on average, the firm might see as a fair price for a

  2. What are the origins of the Pension Crisis and what can be done to ...

    Why is the public not as responsive as urgently needed The privatisation trends and supply-side focus of the late 1980's and 1990's saw many individuals being persuaded to change from occupational pension schemes to riskier personal pensions. The subsequent fall in stock market meant that many individual found themselves much worse off with little to show for their contribution.

  1. 'Although corporate pricing decisions are influenced by many different factors, fundamentally prices will reflect ...

    In short, one firm constitutes the entire industry. Such a definition of monopoly could be applicable to small business or a company selling on a nationwide basis. As I have suggested, in a monopoly market structure, the firm (the monopolist)

  2. At What Level (if any) Should Government Intervene to Promote the Competitiveness of Businesses?

    A good example is in contrasting Japan and USSR1 in 'qualitative factors' of innovation system, resulting in different level of productivity improvement and economic growth. Both Japanese and USSR government provided a number of policies to promote the innovation system.

  1. Discuss the effectiveness of government use of maximum and minimum prices to help consumers ...

    Due to both minimum and maximum prices artificially setting a price that is not in line with the equilibrium price for that product. This will then likely lead to attempts at subverting such policies through the use of informal markets.

  2. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    Retailing Services: Tesco has taken the lead in its sector in expanding into areas like personal finance, telecom, and utilities. It usually enters into joint schemes with major players in these sectors, contributing its customer base and brand strength to the partnership.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work