In Canada, producers of milk, poultry, and eggs are protected by government-imposed supply management rules. This supply management system is made up of a combination of import controls, production planning quotas, and minimum prices for these products.

a. Suppose the goal of the government is to design a supply management system for agricultural products that works to support the incomes of farmers. Explain how the use of production quotas and/or price floors would help to achieve this goal. Briefly explain who benefits and who loses under such a system and why this is so.

b. Why might the supply management system use a combination of a price floor and a production quota?

c. One important facet of this supply management system is restrictions limiting the import of agricultural products. Explain why such import limits are necessary.

d. Suppose European and American farmers are subsidized by their governments in a way that reduces the farmers’ costs. Would the existence of such subsidies strengthen or weaken the need for Canadian import restrictions (to protect the incomes of Canadian farmers)? Explain why or why not.