Problem 7
LAST WORD If a firm's current revenues are less than its current variable costs, when should it shut down? If the firm decides to shut down, should we expect that decision to be final? Explain using an example that is not in the book.
Problem 7
If in a given year the indexes of prices received and paid by farmers were 120 and \(165,\) respectively, what would the parity ratio be? Explain the meaning of that ratio.
Problem 8
Explain the economic effects of price supports. Explicitly include environmental and global impacts in your answer. On what grounds do economists contend that price supports cause a misallocation of resources?
Problem 10
What are the effects of farm subsidies such as those of the United States and the European Union on \((a)\) domestic agricultural prices, (b) world agricultural prices, and (c) the international allocation of agricultural resources?
Problem 11
Use public choice theory to explain the persistence of farm subsidies in the face of major criticisms of those subsidies. If the special-interest effect is so strong, what factors made it possible in 1996 for the government to end price supports and acreage allotments for several crops?
