Agricultural Price Control vs. Minimum Wage - Assignment Example

Microeconomics Theory & Policy: Agricultural Price Control vs. Minimum Wage Q Whereas many economists are critical of agricultural price controls, there is more support for the use of the minimum wage. Discuss whether, and to what extent, you would agree with such a position. Personally, I agree that the minimum wage should get more support from the U.S. government as compared to the agricultural price control. First, when the U.S. government controls the agricultural price, a lot of economic disadvantages are expected to occur as compared to the control over the minimum wage. Since developed country like the United States has a lesser number of people who are directly involved in agricultural farming, the U.S. government strongly needs to encourage the farmers to produce more crops and other food products in order to meet the constantly increasing local demand for food supply. (Thompson) Agricultural prices are heavily dependent on the costs of raw materials such as seeds, water, and fertilizers needed in farming including the oil prices. Basically, when prices of gasoline goes up, the total costs of transporting and distributing the food products throughout the local and international market will become more expensive. The same is true when the prices of raw materials increase. The only way for farmers to protect their income and profitability and be able to financially support the increased in production prices is by increasing the market price of crops and other food products. Second, it is but fair on the part of the farmers to have extra money in their pocket since agricultural activities are highly susceptible from weather condition and natural calamities caused by flood, drought, hurricane, and typhoon among others. Since farmers have no control over the weather conditions, the value or the volume of harvested crops and other food products vary each year. (Thompson) In case the local food supply decreases as a result of uncontrollable external factors, the price of agricultural products is more likely to increase so that the demand and supply for agricultural product to meet at the equilibrium point. Controlling the agricultural prices could financially aid the local consumers only for a short-term period due to the fact that the farmers will significantly suffer from having significantly lesser income and profit. With lesser profit, farmers will not be able to expand its agricultural production over time. When the local food supply fails to meet the local demand for food products, the country will have to depend more on imported food products which could be more costly due to the importation and tariff costs added in food products. Considering this point-of-view, prices of food commodities will be expected to go up in the long run. When prices of agricultural products increases, the quantity demanded for the said product will eventually decrease due to the lack of financial capacity of some people to purchase more food items. (See Figure I – Supply and Demand Curve with Increase Importation of Food Products on page 3) There will also be a negative economic effect in case the U.S. government decided to support the agricultural prices. In case the government supports the agricultural prices by keeping it low, it remains a fact that consumers will only purchase food products based on what they need to consume. (Thompson) As a result, there is a huge possibility for an excessive supply of food to occur in the country. (See Figure II – Supply and Demand Curve when the Government Keeps the Agricultural Prices Low on page 4) Having excessive agricultural products in the country is also not good since farmers will be able to sell these products at a very low par value which could also negatively affect their income and profitability in the long run. (Over production is represented by Q2 in the supply and demand curve provided on page 4) Therefore, the U.S. government should allow the supply and demand curve for agricultural products as dictated by a free market competition to allow the farmers to have the opportunity to demand for a higher agricultural price whenever there is a shortage in the supply of food products. On the other hand, consumers will also have the benefit to enjoy a lower price on agricultural products whenever there is an over-supply of agricultural food products in the local market. Given that the U.S. government allows the price of agricultural products to be dictated by the movement of supply and demand curve, both the farmer surplus move the supply curve to the right in case there is an excess in agricultural production. On the contrary, supply curve will move to the left in case there is a shortage in the supply. The same concept applies with the consumer surplus until both curves meet in the equilibrium point. (See Figure III – Supply and Demand Curve on a Free Market Competition on page 5) There is a serious need for the U.S. government to extend their support on minimum wage legislation in order to protect millions of workers from advantageous business people who pay their employee with a salary lower than the minimum wage. Basically, when the U.S. economy is growing, demand for human resources is also likely to increase. In general, more people will have the opportunity to find a promising job to enable them to support their daily financial needs in case the economy is good. However, when the economy is in a recession, the demand for human resources will significantly drop to enable the small- and big-companies to keep their business going by cutting off some of its operating expenses. In most cases, a bad economy could result to massive layoffs. Basically, decrease in demand for human resources will also result to a decline in workers’ bargaining power to demand for higher salary or wage. Considering that the bargaining power of the workers on wage and salary increase in times of economic recession is low, the U.S. government should provide a strong financial support to the local people. One way to protect the workers’ daily income is by strengthening its minimum wage law. (See Figure IV – Supply and Demand Curve of a Good Economy vs. Human Resources below; Figure V – Supply and Demand Curve of a Bad Economy vs. Human Resources on page 7) Based on the microeconomic theory, there is a cycle that goes around the household, market, and firms in the sense that members of the household finds employment from the firm in order to earn salary and wages to support their financial needs. On the other hand, the money that goes into the family will be used in purchasing products and services they need in order to survive. In other words, the money that enters the household will go back to the firms to enable the company to manufacture and develop more goods and services to meet the demand of the local consumers. Considering the theory behind household, market, and firms, it makes more sense for the U.S. government to extend its support on strengthening the law on minimum wage to allow the members of the households to have some money to purchase their personal needs rather than controlling the prices of agricultural products. Controlling the prices of agricultural products will not only make the lives of the farmers in a more disadvantageous side but also make the expansion of agricultural production impossible. Extending a strong support on minimum wage law will bring in more money to the household in to enable the family member address their personal needs. In the process, the U.S. government does not only promote social welfare by decreasing to rate of poverty and hunger within the country but also promotes a continuous business opportunity on the part of the local firms. *** End *** Reference: Thompson, Robert L. "The Library of Eocnomics and Lieberty." 2008. Agricultural Price Supports. 23 June 2008 . Read More