Question

Explain the procedure of formation of price through government in the interest of producers/over and above equilibrium price/minimum support price/price flooring. Provide answers in points.

Answer 1

The food marketing sector transforms the raw agricultural commodities produced by farmers into the foods purchased and eaten by consumers. The costs of storage, transportation, and processing-the marketing transformations-are an integral component of food price formation. Because the producer and consumer are typically different individuals even in developing countries, commodities must pass from one owner to another, frequently many times, before reaching the family table. This process of exchange takes place in markets and can be conducted only when a price has been agreed on between buyer and seller. In any but a purely subsistence economy, these three topics are inextricably linked-the productive functions of marketing, the role of the market as an arena of exchange, and the formation of food prices at which exchange takes place. For both socialist and capitalist economies, it is impossible to discuss any one of these without at least implicitly discussing the others as well.