Microeconomic aspects of government subsidies in the agricultural market

Lucie Severová, Jan Chromý, Bohuslav Sekerka and Alexandr Soukup
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Lucie Severová: Department of Economic Theories, Faculty of Economics and Management, Czech University of Life Sciences Prague, Prague, Czech Republic
Jan Chromý: Department of Marketing and Media Communication, Institute of Hospitality Management, Czech Republic
Bohuslav Sekerka: Department of Economic Theories, Faculty of Economics and Management, Czech University of Life Sciences Prague, Prague, Czech Republic
Alexandr Soukup: Department of Economic Theories, Faculty of Economics and Management, Czech University of Life Sciences Prague, Prague, Czech Republic

Agricultural Economics, 2012, vol. 58, issue 11, 542-548

Abstract: It is known from the Czech practice that a very actual problem of economic policy is created by the subsidies on the prices of agricultural products. A price subsidy of agricultural product causes the price to be kept above its equilibrium level. We will use the microeconomic knowledge about the behaviour of average and marginal costs curves in the short-run and long-run. We assume two agricultural firms in a perfect competition market. The agricultural large-scale company reaches a normal profit, but the small family firm has higher costs, therefore it runs at a loss. Using the subsidy can ensure that the prices of agricultural products are set at a level, at which the farmers have appropriate incomes. However, a loss of efficiency can occur because of the subsidy as the surplus, which is purchased by the government, and actually stays unused.

Keywords: efficiency; equilibrium; long-run average costs; long-run marginal costs; price intervention programs; subsidy of agricultural products (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:caa:jnlage:v:58:y:2012:i:11:id:212-2011-agricecon

DOI: 10.17221/212/2011-AGRICECON

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