Application of Price Elasticities to Farm Policy Analysis

Much dialogue has been devoted to the “farm problem” by both the public and private sectors in recent months. Expressions of concern about chronic low farm income because of low prices received have again become common. Numerous proposals have been offered as solutions to the problem.It is of concern to the authors that many of these proposals emphasize production control as means of maintaining adequate farm price levels. Economists routinely receive training in the concepts of demand and supply response which, although difficult to quantify, offer easily understood market principles. For example, elasticity of demand can be used to show U. S. farmers how actions taken to reduce domestic production could be less than beneficial to the producer. Perhaps economists have failed to apply some of these concepts in the evaluation of policy alternatives or have not clearly demonstrated the effects (particularly long-run) of unilateral actions taken by the United States.