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Microeconomic aspects of government subsidies in the agricultural market

Author

Listed:
  • 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)

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.

Suggested Citation

  • Lucie SEVEROVÁ & Jan CHROMÝ & Bohuslav SEKERKA & Alexandr SOUKUP, 2012. "Microeconomic aspects of government subsidies in the agricultural market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 58(11), pages 542-548.
    • Handle: RePEc:caa:jnlage:v:58:y:2012:i:11:id:212-2011-agricecon
    DOI: 10.17221/212/2011-AGRICECON
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    References listed on IDEAS

    as
    1. Feder, Gershon, 1980. "Farm Size, Risk Aversion and the Adoption of New Technology under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 263-283, July.
    2. repec:dau:papers:123456789/11783 is not listed on IDEAS
    3. Alexandr SOUKUP & Karel ŠRÉDL, 2011. "Space Model in monopolistic competition - analysis of international trade," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 57(4), pages 169-174.
    4. Diego F. Angel‐Urdinola & Quentin Wodon, 2012. "Does increasing access to infrastructure services improve the targeting performance of water subsidies?," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(1), pages 88-101, January.
    5. Bohnstedt, Anna & Schwarz, Christian & Suedekum, Jens, 2012. "Globalization and strategic research investments," Research Policy, Elsevier, vol. 41(1), pages 13-23.
    6. Just, Richard E & Zilberman, David, 1983. "Stochastic Structure, Farm Size and Technology Adoption in Developing Agriculture," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 307-328, July.
    7. David Coady, 2004. "Targeting Outcomes Redux," The World Bank Research Observer, World Bank, vol. 19(1), pages 61-85.
    8. Robert T. Jensen & Nolan H. Miller, 2011. "Do Consumer Price Subsidies Really Improve Nutrition?," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1205-1223, November.
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    Cited by:

    1. Jan SIROKY & Jirina KRAJCOVA & Jana HAKALOVA, 2016. "The taxation of agricultural land with the use of multi-criteria analysis," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(5), pages 197-204.
    2. Karel ZEMAN & Jan HRON, 2018. "The agricultural sector has the most efficient management of state receivables in the Czech Republic," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 64(2), pages 61-73.

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