Government intervention in the market for various agricultural Essay

Government intervention in the market for various agricultural products - Essay Example This situation may especially prevail when foreign agricultural products are allowed indiscriminately into the market (Dommen, & Mabbs-Zeno,  1989, 98). The government is therefore sometimes forced to maintain a tough balancing act between a free market economy and intervention when the need arises in this particular market to prevent the adverse extremities from occurring (Rothbard, 2008). This paper discusses the circumstances under which such a government intervention can take place with particular reference to the case of the United States of America. Factors Resulting in Government Intervention in the United States The United States government has for long been involved in attempts to enhance profitability in farms through deliberate policies and programs. This is usually done through measures such as regulation, protection of trade, promotion of products and price control and support of income. The government controls the types of food produced, the volume in which they are p roduced, the volume exported and those imported. ... Interestingly, this money came from taxes imposed on the same agricultural sector. The jury is still out on whether the attempt to create jobs is really succeeding considering that the same money taken from farmers in the form of taxes could be used by the same farmers to create jobs. This argument has however not deterred the government from bulldozing on with this policy (Robbins, 1976,  144). The problem with taxation is that it pushes prices of commodities up thus eroding the buying power of the consumer. However, this has to be counter-balanced with the reality that poor quality products that do not adhere to health standards also push up medical bills for the same consumers who complain if prices of commodities go up. The government prefers higher health standards rather than very low food prices (Dommen, & Mabbs-Zeno,  1989, 98). The dynamics of government taxation and the prices of commodities are best expressed in figure 1 below. Figure 1 Change of Equilibrium Due to Tax s tax s 1 P r i p tax c p 1 e (p) D q tax q 1 Quantity (q) In the figure above, the old price [p1] increases due to tax [p tax] while to old quantity [q1] decreases to a smaller amount [q tax]. As a result of these changes, the old supply curve [s1] shifts vertically to the new one [s tax]. Note that the difference between p1 and p tax. This difference is equal to the amount of tax levied which the sellers pass on directly to the consumers (Plott, 1982, 1485). The consumers are therefore left with the option of buying the old quantity at a higher price or a smaller quantity at the old price. The net effect of this taxation is that less of the particular product is sold than before since in many cases the buyers will opt