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Which government intervention scheme is the best?

 
 
khajoo
 
Reply Mon 23 Mar, 2015 08:37 am
If the equilibrium price is $10
1). The government imposes a price floor of $12
2). Ensures that farmer gets $12 per unit by subsidizing
3). Quotas are imposed to raise the price to $12

Which scheme caused the largest change in quantity supplied?
Which scheme made the largest change in farmers' revenue?
Which scheme is most expensive for the government? What are the social costs?
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EconLaoShi
 
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Reply Thu 2 Apr, 2015 05:14 pm
@khajoo,
1. the floor changes QS, the subsidy will change S. Quota, it depends on the world price beforehand.
2. since the floor will lead to a surplus, which must either be thrown out or purchased by the government, the subsidy will increase TR, but compare that to how you were taught Quotas, for a comparison (probably subsidy tho).
3. Depends on if the govt buys the excess in the Pfloor scenario, otherwise subsidy.
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