Greece: Agriculture Subsidy

 Greece has come to an agreement with the EU to provide a 1billion Euro subsidy to Greek farmers and the agriculture sector. Using the graph below, let's say that before the subsidy Q2 amount of agricultural products were being consumed at the price of Pw while domestic production was Q1 and imports were Q1-Q2. However after the subsidy the domestic supply curve was moved to the left becoming S+S. However the demand remains at Q2 and the price at Pw. Now the domestic producers increase their production from Q1 to Q3. This means that they are receiving more revenue. Therefore the subsidy policy is beneficial for the domestic producers. For foreign producers, they are now producing less, from Q3-Q2. This means that they have a fall in their revenues. Thus this policy is detrimental for foreign producers. For domestic consumers, their tax euros are the funding for this large subsidy. To be able to support this large subsidy, the government will most likely need more tax revenue resulting in higher taxes for consumers. Thus this policy is not beneficial for consumers. For the government, they will have an opportunity cost. Meaning that they are choosing to spend a large sum of money on this subsidy that could be used instead to improve infrastructure. For efficiency of allocation of resources, looking back on the graph, foreign producers only have to produce enough to satisfy the revenue of b while domestic has to satisfy the revenue of b and g. Therefore g illustrates the inefficiency of domestic producers and how the resources are being misallocated because more resources than necessary are going into this production. As for the reason for the subsidy, I would say that this could be because Greece imports most of their meats, organic foods, dairy products, etc. Because of COVID happening where trade between the US and EU has been stalled. This means that they need to start producing more food products to support themselves. However this is a completely education guess. 





Vasilopoulos, Costas. “Europe Approves €1B Aid to Greek Farmers, Other Businesses as Agricultural Sector Reels.” Olive Oil Times, 25 Apr. 2020, https://www.oliveoiltimes.com/business/europe-approves-e1b-aid-to-greek-farmers-other-businesses-as-agricultural-sector-reels/81039.

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