The effects of purchasing and price subsidy policies for agricultural products under target zones |
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| Affiliation: | 1. Department of Economics, Feng Chia University, Taichung 40724, Taiwan;2. Department of Economics, Feng Chia University, Taichung, Taiwan;3. Economics & Management School, Wuhan University, China;1. Department of Anesthesiology, Faculty of Medicine, University of Tsukuba, Tsukuba, Japan;2. Department of Anesthesiology, University of Tsukuba Hospital, Tsukuba, Japan;1. Professor of Industrial Engineering, School of Industrial Engineering, University of Tehran, Tehran, Iran;2. Ph.D. Student of Industrial Engineering, School of Industrial Engineering, University of Tehran, Tehran, Iran;3. MSc of Industrial Engineering, School of Industrial Engineering, University of Tehran, Tehran, Iran;4. MSc of Industrial Engineering, School of Industrial Engineering, University of Tehran, Tehran, Iran |
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| Abstract: | A good harvest usually leads to a collapse of agricultural prices since the price elasticity of agricultural products is relatively low. To stabilize the market and protect farmers, many countries have introduced a target zone policy, together with product purchasing or price subsidy strategies. This article analyzes the effect of a target zone with different strategies operating in a coordinated manner. The results show that a target zone policy with agricultural product purchases does not necessarily stabilize agricultural product wholesale prices, but is able to stabilize manufacturing product prices, if the price effect is smaller than the sum of the wealth and asset effects for agricultural products and the price effect is larger than the interest rate effect for manufacturing products. On the contrary, a target zone policy with an agricultural product price subsidy will generate the “honeymoon effect” for agricultural product wholesale prices, but will result in unstableperformance of manufacturing product prices. |
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