Efficiency will be improved through the closing of farms.
Inefficiencies in the marketplace distort the value of the product. In this case, the subsidy distorts the point of equilibrium where cost and price are equal. The farmer is willing to plant more crops than the community is willing to absorb at his cost of production. The government by supporting the higher prices paid to the farmer encourages the farmer to increase his production. The consumers are not willing to purchase the available supply of agricultural products at the artifically high government set price. Therefore a surplus develops.
The increased production of farm products has associated public costs. The increase in production required an increase in the use of chemical fertiliser, water, land, and labor. These inputs could have been used for other product which the consumer might have preferred. A lowering of the quality of the environment also results which is a public cost. No one individual is able to bear the cost of the environmental degradation. The over-use of chemicals, and the use of marginal land for fields with low productivity both contribute to the environmental cost by increasing the level of pollution.
Further inefficiencies develop when France attempts to rid itself of the surplus agricultural products it has acquired. Dumping , as it is commonly called, refers to the undercutting of a commodities world price to eliminate a surplus. Dumping implies extreme levels of misallocation of resources for both the country which is doing the dumping and the country which receives the dumped goods. As the result of dumping, the countries of the European Union are paying higher prices for food and forgoing other possible goods which they would purchase if resources were allocated properly. The CAP does not permit the flow of low priced international food products into its countries. The European Union then dumps subsidized goods onto...
Standardize Agricultural Policy in European Community. (1969, December 31). In LotsofEssays.com. Retrieved 10:10, May 31, 2016, from http://www.collegetermpapers.com/viewpaper/1303838010.html