Global Food and Agricultural Policy Analysis - Question 1

Market failure occurs when the market is inefficient and the resources are not used efficiently.

  • In the given situation, there is a negative externality where the actions of one party affect the third person indirectly in a negative way.
  • In the given situation, there is a positive externality as the actions of one person are having positive impacts on third-person indirectly. It also has an incomplete market, as land is fixed and unable to complete the market demand.
  • In the given situation, there is a tragedy of commons or a problem of property rights, as the people are not assigned property rights which leads to exploitation of the property.
  • In the given situation, there is a market failure of incomplete information r asymmetric information such that one party does not provide the complete information about the good/service to gain more benefits from it by the other party.

Global Food and Agricultural Policy Analysis - Question 2

  • The country 1 imposed an export tax to reduce the price as this will lead to a fall in the supply of wheat by the domestic producers of country 1. This in turn leads to an increase in the domestic demand for wheat, and the government revenue will increase as well. The effects of the policy will reduce the producer surplus, whereas the consumer surplus will increase as now they are getting wheat at a lower price. Although the effect on the economy’s welfare will be ambiguous depending on the net gains.
  • Due to export tax imposition, the price of wheat in the importing country 2 will rise, as the supply of the goods will fall, and the demand will fall. This led to benefits to the domestic producers of country 2 and hence, increases their surplus, whereas the consumer surplus will fall. Also, the overall economic welfare of country 2 will fall, as gains are more than the losses.

Global Food and Agricultural Policy Analysis - Question 3

  • If a small country imposes an export tax, then the domestic suppliers will reduce the supply as the cost of supplying will increase. This leads to a fall in prices and an increase in demand for wheat in the domestic market. The effect of the export tax will lead to a fall in producer surplus and an increase in consumer surplus, along with the increase the government expenditure. Though, the economy's welfare effects will be ambiguous. The imposition of export taxes by a small country won't affect the world's price of the wheat as it doesn't have a significant role in the world's market.
  • If a large country imposes the export tax, then also, the domestic suppliers will reduce the supply as the cost of supplying will increase. This leads to a fall in prices and an increase in demand for wheat in the domestic market. The effect of the export tax will lead to a fall in producer surplus and an increase in consumer surplus, along with the increase the government expenditure. Though, the economy's welfare effects will be ambiguous. The imposition of export taxes by a large country will affect the world’s prices and it will increase in the other countries, and hence, also causes the deadweight-loss.
  • Polices imposed by a large country change the world's prices and affect it, as it has a significant impact on the supply of the world market, whereas a small country does not. If many small countries impose the export tax, then some major share of the work supply will get impacted, and hence, this will lead to an increase in the world price of the good.
  • When there is a price hike due to the export policy, then the government of the countries will sit together to find out a middle way to this issue. Though the country used this policy to protect its consumers from higher prices, therefore, there will be a challenge faced that there is a lack of supply of those goods that are being exported by the country. If they export the domestic country consumers will face high prices, and if not, then the rest of the world’s consumers will face high prices.

Global Food and Agricultural Policy Analysis - Question 4

  • Exporting countries provide exporting subsidies to increase the supply of goods in the world. The increase in the supply of corn by the US producers will increase the domestic price of corn which leads to an increase in producer surplus, and a fall in the consumer surplus as the domestic consumers has to pay the higher prices for the corn due to the export subsidy.
  • The increase in the supply of corn by the US will reduce the world price of corn in the market, which leads to lower price benefits to foreign consumers. This led to increasing in the consumer surplus in Zambia. While the producers of Zambia supply will fall due to fall in prices, and hence, their surplus will fall. Though, the welfare effects of the economy will depend on the net gains.
  • If there are no subsidies in the market for the exporters of the US, then the food aid policy will be effective but relatively less, as the policy aims to provide food to the people at the lowest prices. If the food aid policy is initiated and the food is provided by the government to the rest of the world without export subsidy, then the prices will fall but will be relatively higher as compared to the with a subsidy, as the supply by the US producers will not increase by that much.

Global Food and Agricultural Policy Analysis - Question 5

  • GHGs are the major concerns for every economy as it has health effects, negative externalities, and major harms at a global level due to which the GHGs emissions are the major concern at both national and international level policy issue. All the policies are made keeping in mind the environmental sustainability as the speed at which the global level is happening will affect the whole world. Given that the resources are limited in the world, and the economies depend on each other for some resources, GHGs is the major concern for the whole world.
  • Governments aim to agree to reduce GHG emissions, but they have to face the trade-off with economic development. As development leads to industrialization in the economy which leads to an increase in pollution, whereas if the government aims to reduce pollution, the development will not happen. The government has to find a mid-way such that they can have development and low pollution.
  • Under the emission cap, the government specifies the emission amount in the environment by issuing them the permits, over which if they produce, they have to pay a penalty. This led to companies to improve their technologies and the firms to trade the permits with each other, where the firms with higher abatement cost will buy permits from the lower abatement cost firms. In this way, the economically efficient result can be achieved.

Here, the emission is capped and the demand is represented by the MAC curve, that is, the marginal abatement cost curve, which will be downward sloping, as the emissions increase, the abatement cost falls.

Global Food and Agricultural Policy Analysis - Question 6

  • Market failures lead to inefficiency in the economy as all the resources are not efficiently used which leads to a deadweight loss in the market. US government is providing subsidies on the food products which created a negative externality for the people as it indirectly impacted the citizens as obesity is increasing. The subsidies have increased the supply of the food which leads to an increase in consumption and hence, an increase in obesity. The government is trying to intervene by increasing awareness on the consumption of healthy foods, taxing more on unhealthy food items.
  • The government is subsidizing agricultural products such as sugar, and poultry goods and so on which are causes of obesity. If the government reduces the subsidies on these goods, the price will increase, and the people consumption will fall, and hence, reduces obesity.
  • Fat taxes are the taxes imposed on the goods that lead to fat and obesity among the people. The taxation on either fast food or saturated goods will increase the consumption of healthy goods among people, whereas, if we impose the tax n saturated goods it will have a greater impact. This is so because the fast-food outlets will improve their food items as well accordingly, so the people who can afford even at higher prices will also switch to healthy food items.
  • Subsidizing the heath taxes means reducing the taxes on healthy food products, which will lead to lower prices of healthy food full of nutrients. This, in turn, will lead to an increase in the consumption of healthy goods by the people, and hence, lead to a falling in the obesity rate among the people.
  • Eliminating the subsidy on certain farm products like sugar and removing trade barriers on vegetables and other healthy products that are healthy are the policies that are recommended by the researchers. According to them, this will lead to an increase in the prices of unhealthy food and a fall in prices of the healthy food, and hence, the obesity of the people will fall eventually.
  • Removing subsidies on the farm products are done to protect the farmers and availing the goods at the lower prices. Creating awareness among people and the food outlets of junk foods should be made aware as well to come up with healthy food items in their outlets as if people won't have the option of the unhealthy items they won't be able to buy them and there will be no obesity. Also, they can increase the raw material price of some of the unhealthy items for the manufacturers that will increase the price of a good and hence, lead to lower consumption.

Global Food and Agricultural Policy Analysis - Question 7

  • Given the payoffs table of the United States and China, if both the players are deciding on the abatements on their own, then the US and China won’t be able to decide on any particular outcome as there is no dominant strategy for both the players, as their decision depends on the other player’s strategy on the abatement.
  • Social optimal outcome occurs when no one can be making better off without making the other player worse off when we change the outcome from the social outcome. In the given situation, the social outcome is (4,4), and if the US and China come into an agreement, then both will abate the emissions, and hence, achieve the optimal outcome. Though they have come into an agreement verbally, therefore, there will be a credibility issue with the other party, as if one abates and the other one doesn’t then the payoffs will be higher for the not abating one.

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