Tuesday, February 14, 2012

Why does a Salad cost more than a Big Mac? I am glad you asked---the answer within...

Here is an excellent example of how subsidies can distort markets. Subsidies tend to (1) lower the cost of production, hence more supply of  a good and/or (2) lowers the price of the good for the consumer, hence more demand for a good. More supply, more demand, more market quantity.  Notice I have not said anything about the societal value of the good in question.

 Below is the US Dept of Agriculture's "Food Plate" replacement of the traditonal  "food pyramid" many of us old-timers grew up learning.  It is simply suggested serving sizes/portions of various foods that promote good health in the long run.

Below that is the proportion of subsidy money (read that tax money) that is provided mainly to suppliers of various agricultural products.  Notice an imbalance? Fruits and Vegtables occupy approx half of the plate but receive a fraction of the subsidy money--Meat and Dairy occupy less than half but receive well over half the subsidy money.  Grains are just about right (however, I wonder if that includes corn for ethanol subsidies)...

Source: PCRM
Remember, it is the SAME agency, The Dept of Agriculture that is responsible for BOTH of these programs! 
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