ABSTRACT
In economics, marginal cost analysis used for agricultural policy analysis purposes results in an approximation of potential impacts on categories of individuals. US Agricultural policy has encouraged overproduction through price supports set above the market clearing price. This has the effect of lowering prices for consumers and is known as the cheap food policy. The demand for most agricultural commodities used for food is derived from the demand for processed and packaged products. Elasticity of demand is measured as the percentage change in quantity demanded in response to a percentage change in price. Government subsidies for agriculture have been implemented in various forms. The subsidy would have the effect of shifting the supply curve to the right, reflecting the lower marginal production costs of individual farmers. Economic theory teaches that in perfect competition everyone knows what everyone else is doing in the market.
