The Family Farm

Historically, the family farm in the United States has been considered one of the cornerstones of both the economy and the culture. The pioneers who colonized the West did so on farms and ranches, and the family farm epitomizes American values. In recent years, however, farming has increasingly been influenced by agribusiness, which consists of large corporations bringing economies of scale to huge operations. Commodity prices have fallen, and the smaller farmers are often forced to sell their assets and find other means of employment. This research considers one of the strategies used to stem this trend, price floors, and the economic ramifications of this strategy.

Price floors are minimum prices that the government guarantees farmers. If a farmer is unable to obtain that price in the market, the government will purchase the goods at that price from the farmer. The goal here is to provide the farmer with a guaranteed price for his goods so that he will be able to continue his farming operation. Ideally, price floors are meant to ensure that farmers whose costs exceed the price of their goods can remain solvent. In other cases, however, price floors merely increase the amount of profit that companies receive for their activities (Bronstien 9).

In some cases, the government does not purchase the goods from the farmer, but instead pays them not to produce at all (farm subsidies). This prevents an excess amount of goods from being availabl

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t them at all. This has resulted to avoid having a surplus of goods and thus avoid the inefficient distribution of food products. But the farmers cannot plant any other crops in their fields as this would make them ineligible for the farm subsidy since they would receive "extra" money that their colleagues were not eligible for. This leads to the absurd (and highly market inefficient) situation of paying farmers for not farming. The following graph illustrates this situation as the supply curve shifts upward (to S'). The quantity supplied at the higher price is the same as the quantity demanded (q'), and the revenue increase to the market overall is slightly higher as the decrease in quantity demanded is exceeded by the price increase. Price floors in farming also lead to the question of how various members of society are affected. Farmers gain in the short-run because they receive revenues for their crops which they would not otherwise receive. However, they are not given any incentive to find alternate crops or alternate ways of farming which would increase their ability to generate future revenue. Also, they are not encouraged to seek overseas markets for their products (or other supply routes) since they can simply

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