Producer support in markets
- Levels: AS, A Level, IB
- Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC
There are different types of support available to producers such as farmers in both developed and developing countries. Often times, the intervention has political and social aims as welfare as economic objectives.
Support might include:
- Input subsidies such as en employment subsidy or tax relief when purchasing capital equipment
- Guaranteed minimum prices
- Buffer stock schemes to reduce price volatility
- Export subsidies
- Grants to cover operating losses
When analysing the effect of interventions in markets, remember to show clearly changes in market price and quantity demanded and supplied. Consider the impact of intervention on levels of consumer and producer surplus.
Some of the main aims of support include:
- Lowering prices in markets to encourage an increase in consumption - for example, by increasing the affordability of certain goods and services
- Providing financial incentives for businesses in emerging industries such as renewable energy or biotechnology
- Stabilising prices and incomes to reduce the risks associated with market volatility
- Funding schemes designed to improve the human capital of the workforce and strength the mobility of labour
Evaluating the impact of producer support programmes
- Subsidies can distort the working of the free-market price mechanism - e.g. guaranteed minimum prices can lead to a structural problem of excess supply as growers respond to the incentive of a higher-than-normal price
- The benefits of subsidies are rarely distributed equitably - always think about who stands to gain most from an intervention. For example comparing the returns to large-scale farmers in contrast to smaller-scale producers
- Producer support can have negative unintended consequences - for example subsidising the cost of fertiliser or providing tax relief for capital equipment in farming can clearly help to increase productivity and bring down the unit cost of food production, but there might also be some negative environmental effects including over-use of farm land and excessive rates of deforestation
- Who bears the cost of producer support? Does it leads to a higher tax burden and with what possible effects on other industries in an economy?
- To what extent does financial support for suppliers lead to a dependency culture and keep inefficient businesses in markets, where free market forces could lead to increased competition and more efficient and innovative suppliers challenge existing firms?
Develop your knowledge and understanding:
Revision presentation on subsidies
Quizlet revision activity on government intervention in markets
Subscribe to email updates from tutor2u Economics
Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.
You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.
You might also like
From the Blog
More Study notes
-
Designed to support Year 12 students in the first year of taking A Level Economics, our Flying Start Student Workshops focus on the core Year 1 teaching content and aim to build...
-
Our A Level Economics Grade Booster workshops are designed to provide essential revision support to all A Level Economics students as they complete their preparation for the three terminal papers...
Popular Content
-
AQA A Level Economics Diagram Practice Book
- SKU: 02-4130-30187-01
-
Printed Edition
-
Student personal license
- £7.95
Added to your Shopping Cart!
AQA A Level Economics Diagram Practice Book
- SKU: 02-4130-30187-01
-
Printed Edition
- £7.95
-
Edexcel A Level Economics Diagram Practice Book
- SKU: 02-4130-30188-01
-
Printed Edition
-
Student personal license
- £7.95
Added to your Shopping Cart!
Edexcel A Level Economics Diagram Practice Book
- SKU: 02-4130-30188-01
-
Printed Edition
- £7.95
Teaching Vacancies
-
Teacher of Economics and Business Studies 10 days left to apply
d’Overbroeck’s, Oxford
- Browse all jobs ›
Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.