Discuss Whether Governments Should Subsidise Food Prices

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Discuss whether governments should subsidise food prices There are many positives and negatives to subsidising food prices, there are also many other ways that one can impact the price of food to make it affordable for the world population. Firstly, what is a subsidy? A subsidy is an amount of money that a government would give to a producer that leads to a decrease in price of, in this case, food. It has the aim of increasing the production of good with a positive externality. For a subsidy to be effective, the policy would depend on how much of the subsidy would be passed onto the consumers or how much would be kept by the producers. On the above graph, between P1 and P2, that is the amount of the subsidy that is kept by the producers and between P1 and P3 you can see the amount of the subsidy that is passed onto the consumers. A positive externality can be described as a positive spillover effect on the third party, society. This is positive because when the government, the first party, gives money to the producer, the second party, of a good or service, the third party, society, benefits from the transaction. They benefit because they would be able to afford food more easily due to the decrease in price shown above. Another policy that the government could implement would be to decrease the sales tax on food products; this would help, as it would decrease the costs of producing the food. The aim of a sales tax on a good is to reduce consumption however; if you reverse this then you can decrease the tax in order to increase consumption. This all depends on the price elasticity of demand for food. I believe the food is the biggest market in the world, and for a government to try and give enough money to producers for them to produce more would be a near impossible

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