Farming Project Outline

1. The most common example of a market with perfect competition is agriculture.

How could farm subsidies distort a model of perfect competition? Explain.

I. Perfect Competition

A. Explain what perfect competition is.

Each firm is such a small part of the total industry, that it cannot affect the price of
the product in question. It’s structured in which the decisions of individual buyers and
sellers have no effect on market price.

1. There are large number of buyers and sellers.

2. The product sold by the firms in the industry is homogeneous- that is,
indistinguishable across firms.
3. Both buyers and sellers have access to all relevant information.
4. Any firm can enter or leave the industry without serious impediments.

Miller, Roger LeRoy. “Economics Today.” Pearson, vol. 19. Chapter 23: Perfect Competition,
pp. 511

II. Subsidies

A. Explain what subsidies are.

1. A subsidy is a negative tax. It is a per-unit payment made to either a business or to

a customer when the business produces or the consumer buys a good or service.
Provision of a per-unit subsidy shifts the supply curve rightward, which generates
a lower market clearing price and a higher equilibrium quantity.

Miller, Roger LeRoy. “Economics Today.” Pearson, vol. 19. Chapter 5: Public Spending and
Public Choice, pp. 105

2. Subsidies are government expenditures that are intended to help stabilize an

economy by ensuring that the citizens are able to afford essential household goods
and services or by providing domestic businesses the opportunity to remain viable
despite cost disadvantages in competing with foreign producers. Subsidies may
also be used to support other socially beneficial initiatives such as those that help
restore or improve the environment or that stimulate job creation. In a globally
competitive environment that is interconnected, governments and political figures
are tasked with the responsibility of ensuring economic stability.
Julien, Ayanna. “Subsidy.” Salem Press Encyclepedia, 2020.
http://eds.b.ebscohost.com/eds/detail/detail?vid=7&sid=f53d8bcb-677d-4b3c-9ec1-
03b89e375a22%40pdc-v-
sessmgr02&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d#AN=87325035&
db=ers

B. Explain how farm subsidies work.

1. Farm subsidies are programs that were created in the 1920’s to stabilize farmer’s
incomes, by protecting them from the annual ups and downs of their income due
to fluctuating market demand and farm production. Some are designed to ensure
that farmers will receive at least an established minimum price for their crops,
even when supply is greater than demand. In these programs, the government
pays the minimum price for crops, helping prop up the market price. Other
programs pay farmers to leave their fields fallow in an effort to avoid
overproduction of designated crops. Governments use farm subsidies to actively
manage the farm production of rice, wheat, oats, barley, soybeans, cotton, milk,
peanuts, sugar, tobacco, beef, pork, and corn. The government can also profit
from the surplus created by exporting the goods to other countries.

Ford, Alex. “Farm Subsidies: An Overview.” CCBC Library, 2018

http://web.b.ebscohost.com.ccbcmd.idm.oclc.org/pov/detail/detail?vid=0&sid=40a499bd-5d3e-
4759-9f71-4c2cb5fe99cb%40pdc-v-
sessmgr02&bdata=JnNpdGU9cG92LWxpdmU%3d#AN=23814987&db=pwh

2. Agriculture is an industry like no other. Whereas automobiles are arguably

necessary to get through life in cities, but no one is likely to die from lack of owning
a car. Food is different because everyone needs it to stay alive. In that sense,
agriculture is a strategic industry, critical to the survival of our country. The people
and government of the United States have a strong interest in assuring a steady,
reliable food supply at a price that virtually everyone can afford.

Goldmark, S.M./ Grant, Richard A. “Counterpoint: Farm Subsidies are Needed for American
Farmers.” CCBC Library, 2018
http://web.a.ebscohost.com.ccbcmd.idm.oclc.org/pov/detail/detail?vid=0&sid=a944d963-f03c-
4578-b712-
37b6913d1680%40sessionmgr4007&bdata=JnNpdGU9cG92LWxpdmU%3d#AN=23315790&d
b=pwh
 III. How farm subsidies distort a model of perfect competition.

A. How is agriculture and farming an example of perfect competition?

1. Agriculture is one of the best examples of perfect competition. The farmer can
set any price they want for whatever the product is, but if that price is higher
than the market price, no one will purchase it. The farmer also wouldn’t want
to sell below and reduce their revenue. But at the market price, they can sell as
much as they wish to produce.

Miller, Roger LeRoy. “Economics Today.” Pearson, vol. 19. Chapter 23: Perfect Competition,
pp. 511

B. How the subsidies distort the model of perfect competition.

1. The main way farming subsidies distorts perfect competition, is that famers
are able to sell their product for less than what it costs to produce. By having
these subsides, it has turned the market from family owned farming, to large
scale businesses taking over the market. It has also distorted the export market
of agriculture. The US is able to sell their excess products to other countries
cheaper than that country can, making it very difficult for those farmers.

2. American corn farmers receive billions of dollars in taxpayer subsidies each year.
These subsidies allow them to sell their grain at prices below what it costs to produce it,
particularly for export markets. How do U.S. corn subsidies hurt Mexican farmers? What
could be done to address this problem, and why would the solution be effective?

I. Different subsidies

A. Each year, there is about 20 billion dollars that is distributed as subsidies to farmers
all over the US. This has been done since the Great Depression as a way to keep food
prices affordable. This is done through the Farm Bill, which has to be renewed every
5 years. Each time it is renewed it is determined how the money will be divided out in
different ways to the farmers for their crops. Some work by paying for the land used
by famers and some work by buying excess crops from the farmers.

Mosquara, Jennifer. “Corn, Cows, and Cash: How Farming Subsidies work and what they could
potentially achieve.” CCBC Library, 2018
http://eds.b.ebscohost.com.ccbcmd.idm.oclc.org/eds/detail/detail?vid=13&sid=f53d8bcb-677d-
4b3c-9ec1-03b89e375a22%40pdc-v-
sessmgr02&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d#AN=141764919
&db=eih
 II. Effect on Mexican Farmers

A. These subsidies have a large effect not only on the US economy, but also the Mexican
economy. By having these subsidies, it allows farmers and the government in the US,
to sell their crop much cheaper that Mexican famers can in their own country. This in
turn will run them out of business and distorts the model of a market with perfect
competition. When this happens, it pushes the Mexican farmers to come to America
and work where it is more affordable to farm, which can have some negative
economic effects on the US.

Ford, Alex. “Farm Subsidies: An Overview.” CCBC Library, 2018

http://web.b.ebscohost.com.ccbcmd.idm.oclc.org/pov/detail/detail?vid=0&sid=40a499bd-5d3e-
4759-9f71-4c2cb5fe99cb%40pdc-v-
sessmgr02&bdata=JnNpdGU9cG92LWxpdmU%3d#AN=23814987&db=pwh

III. What can be done to help Mexican farmers?

Farming has changed from a family business to a large agro-business where the largest and
wealthiest farms get the most benefit from the subsides. The top 10 percent (by income) of farm
enterprises received 65 percent of the subsidies, whereas the bottom 80 percent received just 19
percent. If some of these subsides were removed from these large corporations, it could help
Mexican famers by having less crop imported into their county much cheaper than they can sell
it for. In addition, Mexico could impose tariffs on imported crops into their country in order to
fill the price gap in the market. This would help Mexican farmers keep their jobs and be able to
afford to live and work in their country without the need to migrate to the US.

Lee, Debora/ English, Marlanda. “Point: Farm Subsidies are no Longer Necessary.” CCBC
Library, 2018
http://web.b.ebscohost.com.ccbcmd.idm.oclc.org/pov/detail/detail?vid=0&sid=9c7d8d87-5082-
4824-80f9-65e43b6aed4d%40pdc-v-
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3. Summarize the arguments both in favor of and against eliminating farm subsidies. After
your evaluation, where do you stand on this issue and why?

I. Arguments for subsidies

1. Subsidies are a way for the US Government to remain independent in its food supply
and not have to rely on imports from other countries.
 2. Everyone needs food to survive, it is a strategic industry that is critical to the survival
of our country.

3. Without subsidies, it’s possible that Americans would have trouble competing against
produces abroad who might be able to produce and sell for less.

Goldmark, S.M./ Grant, Richard A. “Counterpoint: Farm Subsidies are Needed for American
Farmers.” CCBC Library, 2018
http://web.a.ebscohost.com.ccbcmd.idm.oclc.org/pov/detail/detail?vid=0&sid=a944d963-f03c-
4578-b712-
37b6913d1680%40sessionmgr4007&bdata=JnNpdGU9cG92LWxpdmU%3d#AN=23315790&d
b=pwh

4. At the same time, it allows the US to be able to export goods at a lower cost to other
countries.

II. Arguments against subsidies

1. Has turned the farming industry from a family business to a huge agribusiness run by
large companies.

2. The large companies are the ones who reap the benefits of the subsidies.

3. These subsidies were needed years ago when farm incomes were low and helped prop
up the farming industry especially after the Great Depression.

4. Now that farm owners are some of the wealthiest in America, they don’t need
subsidies anymore.

5. Subsidies make it so that the US is able to export goods to Mexico at a lower cost
than Mexican farmers are able to sell. This in turn can cause Mexicans to migrate to
the US to try and work in agriculture here, which can have a negative economic
impact on the US.

Lee, Debora/ English, Marlanda. “Point: Farm Subsidies are no Longer Necessary.” CCBC
Library, 2018
http://web.b.ebscohost.com.ccbcmd.idm.oclc.org/pov/detail/detail?vid=0&sid=9c7d8d87-5082-
4824-80f9-65e43b6aed4d%40pdc-v-
sessmgr05&bdata=JnNpdGU9cG92LWxpdmU%3d#AN=23316699&db=pwh
III. Where I Stand

A. I believe that there should be farm subsidies in the United States. Our food supply is
something that should not be left unchecked and unregulated, as it is a basic function
of life that we need. By having subsidies, it ensures that food prices stay affordable
and that the farming industry will always be sustainable. Some say that these subsides
have turned the farming industry into huge corporations; and they aren’t wrong. The
farming industry has turned from a small family business to large fortune 500
agribusiness; but that is needed today. The US population has grown immensely and
the farming industry needs to grow with it in order to be sustainable. I also think
subsides are needed because it keeps the US from having to rely on exports in order
to obtain crops. This keeps the US independent which helps stimulate the economy by
providing jobs for Americans.