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European governments have a policy of supporting farm incomes with artificially high prices for certain foodstuffs. What are the economic effects of this on Europe and the rest of the world.

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Introduction

European governments have a policy of supporting farm incomes with artificially high prices for certain foodstuffs. What are the economic effects of this on Europe and the rest of the world. (20) The government uses a large number of methods of regulation as a means of controlling a market. Legal and other methods are used to control the quality and the quantity of goods and services that are produced and consumed. Other methods of regulation may include the requirement of an individual to purchase an insurance policy, age restrictions and the payments of social insurance contributions. But regulation may not apply to the quantity and quality of goods and services but may also refer to the process. Examples of price controls include minimum wage legislation, maximum price and rent controls. Maximum price controls dictate how governments impose this policy in markets and how in agricultural markets price stabilization policies can be applied. ...read more.

Middle

A producer's association or a government backed marketing board regulates supply by releasing stocks on to the market at times of shortage or by purchasing excess stocks at times of surplus production, price can be established at a predetermined level. Although theoretically simple in terms of their economic logic, such policies are often criticized as they do not promote efficiency and tend to protect farmers from the full force of competition in world markets. England, France, Germany and Denmark, all members of the European Union are obvious examples of European governments that have a policy of supporting farm incomes with artificially high prices for certain foodstuffs. Accounting primarily for European governments' flagrant economic support would be protectionism. The government bids to protect interests of their own industry while safeguarding employment in the home economy. Vote bank, an important contributing factor comes into play because the government has to keep them happy, supporting them, or else they will loose extensive number of votes from the farming sector. ...read more.

Conclusion

Protectionism blocs trade. Within the European Union trade is supposed to become easier. Termed as an Economic Union, the crucial feature is that members agree to erect a common external tariff on trade with non-members. Characteristically, removal of tariffs and quota on internal trade, common tariff on trade with non-members and centralization of economic policies, though in practice duties or levies prevent it from functioning as one, almost defeats the purpose of the EU. The effects on the rest of the world are immediate as it takes shape in the form of complete restrictions on international trade where farming produce is considered. Trade Wars take place, where for example Europe will not accept US beef, or Argentinean chilies. This encourages a hostile trading atmosphere where trade is perhaps dormant for a period of time. The possibility of trading through comparative advantage and absolute advantage have to be ruled out, as it leaves to room for trade whatsoever. 1 1 ...read more.

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