ABSTRACT
This chapter deals with the objectives of price policy, the instruments most frequently used to implement them, and the effects of price policy. Stabilizing agricultural prices or reducing fluctuations of some high-priority commodities is another important objective of agricultural price policy. Price intervention in product or factor markets has the explicit objective of modifying a situation regarded as undesirable and potentially improvable. The chapter reviews some of the effects of governmental price policy on the agricultural sector. Resource allocation is distorted when price policy programs focus on a particular commodity without taking into consideration the existence of substitutes in consumption for the product in the program. The immediate effects of a price policy discriminating against the use of an input via artificially high prices restrict its use and generate some costs to society in terms of welfare losses. Schemes of export taxes differ depending on the main objective of the tax: transfer of resources from agriculture, or price stabilization.
