Dopes
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The question was:

'Discuss whether governments should subsidise food prices'

Usually essays involving subsidies discuss market failure/demerit/merit goods/negative/positive externalities so I was thinking i should define those to start with, but the question only mentions subsidies so I'm unsure if I should be approaching it that way.

Also, a subsidy should decrease the cost of production, leading to increased supply, but in this case we 'subsidise food prices.' Would that be an example of a case where a direct payment is made by a government to consumers? Would a subsidy on food prices be equivalent to lowering prices - leading to increased demand in this case instead of/or as well as increased supply?
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PAPADAPADOPOLOUS
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If you subsidise something, its a payment to the producers, not the consumers, shown by a increase in supply (outward shift), lower price, more production. Yeh, if the price falls, then demand will rise.

Read the question it says 'food', what type of food?

Junk Food - Negative externalites (market failure) - obesity - increased pressure on the NHS - possibly requiring even more spending - more deficit - hurts governments objective to balance the books by 2020

Healthy food - positive externalities arguably? - Subisidie will be good, cause consumers to switch expenditire from junk/unhealthy to healthy foods. Also subsidy will increase both producer and consumer surplus

Subsidies - Very expensive to impose, food market is absolutely enourmous (billions of pounds),

Producers may not pass on the subsidy, could just allow them to make more profit, therefore not benefiting consumers, but producers.

Greatly benefits poorer households as a larger proportion of their income is spent on food, more disposable income to spend on other goods/services, increased welfare

money could be spent elsewhere, possibily on junk food awareness programs and there problems - could take long time to implement - 10+ years to be effective - subsidie has an impact from day 1, very quick.

also could then go into international context. could be seenas a form of protectionism - other countires especially food producers in europe could retaliate or whatever.

also could say subsidie may be ineffective as demand for food is inelastic, more so for junk food.


etcc... sorry if its messy, just did it v.quickly, but yh some general ideas
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Dopes
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(Original post by PAPADAPADOPOLOUS)
If you subsidise something, its a payment to the producers, not the consumers, shown by a increase in supply (outward shift), lower price, more production. Yeh, if the price falls, then demand will rise.

Read the question it says 'food', what type of food?
Ah, ok. Healthier foods are merit and junk foods are demerit - so since the question involved a subsidy on 'food' in general it's best to talk about both. Maybe say the government should subsidise fruit and veg but not confectionary, to encourage people to purchase healthier food over junk.

(Original post by PAPADAPADOPOLOUS)
Junk Food - Negative externalites (market failure) - obesity - increased pressure on the NHS - possibly requiring even more spending - more deficit - hurts governments objective to balance the books by 2020
This helped a lot, thanks - using government objectives in essays as well as any relevant knowledge is something I think I should do to write better essays. I'm not sure about how to link negative externalities with market failure, though. Are negative externalities a sign of market failure or a type of market failure?

(Original post by PAPADAPADOPOLOUS)
Also subsidy will increase both producer and consumer surplus
Is this because prices decrease?
edit: thought about this a bit - shouldn't an increase in producer surplus mean a decrease in consumer surplus and vice versa?

(Original post by PAPADAPADOPOLOUS)
also could then go into international context. could be seenas a form of protectionism - other countires especially food producers in europe could retaliate or whatever
Why/when are subsidies a form of protectionism?
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IDK Tuition
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(Original post by Dopes)
Ah, ok. Healthier foods are merit and junk foods are demerit - so since the question involved a subsidy on 'food' in general it's best to talk about both. Maybe say the government should subsidise fruit and veg but not confectionary, to encourage people to purchase healthier food over junk.



This helped a lot, thanks - using government objectives in essays as well as any relevant knowledge is something I think I should do to write better essays. I'm not sure about how to link negative externalities with market failure, though. Are negative externalities a sign of market failure or a type of market failure?



Is this because prices decrease?
edit: thought about this a bit - shouldn't an increase in producer surplus mean a decrease in consumer surplus and vice versa?

Why/when are subsidies a form of protectionism?
-Are negative externalities a sign of market failure or a type of market failure?

Negative externalities are a source of market failure so yes they are a sign of market failure in a sense. They cause the market quantity to exceed the socially optimal quantity (over-production/over-consumption). "Over/under production/consumption" is the main type of market failure in AS level economics- the other is missing markets (public goods).

-Is this because prices decrease?

Yes, prices decrease so consumer surplus increases. Essentially the government pays firms to produce a higher output so consumer surplus increases.

-Why/when are subsidies a form of protectionism?

If a government subsidises a market/industry, the country will produce that good at a lower price than international competitors.

Hope this helps,

Tom (IDK-tuition.com, free online economics resources and videos)
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