ABSTRACT
This chapter is concerned with developing a framework for measurement of the effects of the instruments of Common Agricultural Policy (CAP) on such groups as producers, consumers and taxpayers and for the measurement of the resulting inter-group and inter-country transfers. Economists use the ideas of supply and demand schedules to describe the behaviour of producers and consumers in response to price changes and to analyse the determination of prices and the effects of policies which manipulate prices. The chapter deals with the basic economics of price support for individual countries. It examines community preference in agricultural trade; country-differentiated prices for agricultural commodities and the associated Monetary Compensatory Accounts, and common financing of the community agricultural policy. One such alternative is to assume that a single country withdraws from the CAP yet maintains domestic prices at existing levels, and trades in all agricultural products at world prices by means of national export subsidies and import levies.
