Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices. It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quotas on grain production, limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.
Suppose an individual farmer in Country R wishes to minimize the impact on profits of the grain quota whose eventual imposition is being predicted. If the farmer could do any of the following and wants to select the most effective course of action, which should the farmer do now?
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Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices.
Policies allow farmers to sell unsold grain to a board at guaranteed prices. (This seems to take away the incentive of farmers to do proper demand estimation since it seems they’ll not make a loss on the grain not sold in the open market.)
It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quotas on grain production,
“resultant escalating overproduction” implies that as a result of the policies, not only are farmers producing more than the open market demand, but the overproduction is escalating as well. The author predicts that to tackle this increasing overproduction, the grain board will have to impose restrictions on production.
limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.
What sort of restrictions? Farmers will be limited to using a fraction of the acreage they cultivated previously. Say a farmer has 10 acres of land that he uses to produce grain. Under the restriction, the farmer will not be able to use the entire 10 acres of land to cultivate grains.
Gist: A grain board buys unsold grain from farmers at guaranteed prices. It seems that the board will eventually have to impose quotas on grain production to tackle the increasing overproduction. The farmers would be restricted to using only a flat percentage of the acreage they cultivated previously.
We’ve been asked to consider an individual farmer with certain specific motivations. The farmer wishes to maintain his profits after the grain quota is implemented as close as possible to what they were before.
What would help the farmer not let his profits drop too much after the restriction is imposed? How can the farmer not let his profits get impacted despite not being able to use his entire piece of land? A concrete way to achieve this is not striking at this point. Let’s go through the answer choices.
(A) Incorrect. What impact would selecting in advance fields the farmer would retire have on the profits? What if the farmer did not select “in advance” and made the same decision the evening before the quotas are imposed? Would that make any difference w.r.t. the profits? None.
(B) Incorrect. The prices of grain are not at issue. The restriction is not on how much grain can be sold. The restriction is on what proportion of land can be used for cultivation, and as a consequence how much grain can be produced in a piece of land. There is nothing in the passage to indicate that the farmers are not able to sell grains at a profitable price. So, fixing the selling price through long-term contracts would not help them maintain profits.
(C) Incorrect. The farmer wishes to minimize the impact on profits of the grain quota. While improving efficiency might increase overall profitability, tractors’ efficiency has no bearing on the impact of the grain quota. Anyway, buying new tractors might be capital intensive and might impact profits negatively.
(D) Correct. “marginal land” indicates part of the land that the farmer owns but does not currently use for cultivation. If the farmer puts this marginal land under cultivation and grows grain on it, this piece of land would also be considered a part of ‘grain acreage cultivated previously’ when implementing the quota. Since the quota would require reducing land under cultivation by a flat percentage, the farmer could then first stop cultivation in this marginal land, and only if the percentage is still not achieved, he’d need to stop production in some part of the land that he originally used for cultivation.
(E) Incorrect. Let’s say other farmers agree to the cutbacks. What would voluntarily cutting back grain production achieve?
Let’s say that the grain board opines that the cutbacks have reduced the overproduction satisfactorily and thus quotas on grain production are not needed. What then? Either way, the farmer’s sellable grain quantity has reduced, and thereby his profits have taken a hit.
How about if the cutbacks are not significant enough and the grain board decides to impose quotas on grain production (albeit, slightly less stringent)? In this case too, the overall production would reduce, and thus his profits would still take a significant hit.