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United States Department of Agriculture Economic Research Service https://www.ers.usda.gov A 93.44 AGES 871215 Jnited States )epartment of Agriculture Economic Welfare Economic Research Service Analysis Agriculture and Trade Analysis An Application to the Division SWOPSIM Modeling Framework Stephen L. Haley Praveen M. Dixit

WAITE MEMORIAL DEPARTMEN•T OF BOOK COtLECT1ON AGRICULTURAL AND 232 APpLiED 1994 CLASSROOM BUFORD OFFICE ECONOMICS AVENUE, BLDG. UNIVERSITY PALII,„ OF MINNESOTA MINNESOTA 551O8 ECONOMIC WELFARE ANALYSIS: AN APPLICATION TO THE SWOPSIM MODELING FRAMEWORK, by Stephen L. Haley and Praveen M. Dixit, Agriculture and Trade Analysis Division, Economic Research Service, U.S. Department of Agriculture. Staff Report No. AGES871215. 72 E3\6,

//352.1/35* ABSTRACT

This report presents an overview of 'welfare economics relevant to (1-nternational trade issues. It describes and analyzes the strengths and weaknesses of various welfare measures commonly used in empirical trade research and concludes that the Marshallian welfare measures of consumer and producer surplus are best suited for use in the SWOPSIM modeling framework. The report then describes the procedure for creating and modifying specific spreadsheets for welfare analysis7 This SWOPSIM welfare calculation framework can deal with a variety of theoretical issues in welfare analysis. These issues include the path dependency problem, producer and consumer subsidy equivalents in a multigood setting, the distinction between intermediate and final goods, joint products, and mandatory supply controls. The framework is useful for evaluating and measuring potential gains from trade, especially in the context of trade liberalization negotiations.

Keywords: Welfare, consumer surplus, producer surplus, international trade, trade liberalization, economic model

ACKNOWLEDGMENTS

Nicole Ballenger, Barry Krissoff, Suchada Langley, Karen Liu, Michael Lopez, Vernon Roningen, Ralph Seeley, and Jerry Sharples reviewed the manuscript and made suggestions. Bonnie Moore edited the manuscript, and Verleece Hill prepared the manuscript.

1301 New York Avenue, NW. Washington, DC 20005-4788 August 1988 CONTENTS

Page

INTRODUCTION 1

ECONOMIC SURPLUSES AND WELFARE IMPLICATIONS 2 Consumer Surplus Concept 2 Producer Surplus Concept 7 Efficiency Loss Concept 9 Welfare Analysis and International Trade 10 Measuring Welfare in a Multimarket Framework 12 Problems in Using Economic Surpluses in International Trade 14

SPECIAL METHODS FOR MEASURING WELFARE 16 Measuring Welfare in a Single-Good Setting 17 Measuring Welfare in a Single-Good Setting with Policy Distortions 20 Measuring Welfare in a Multigood Setting with Policy Distortions 21 Measuring Welfare with Intermediate Goods and Final Goods 23 Joint Products 26 Supply Controls 27 Note on Consumer Surplus 28

ALTERNATIVE, SPECIAL PROCEDURES FOR ANALYZING WELFARE IN SWOPSIM 28 Country/Region Welfare Spreadsheet 30 World Welfare Spreadsheet 33 Comparison With SWOPSIM Default Welfare Measures 33

CONCLUSIONS 35

REFERENCES 36

APPENDIX--SWOPSIM WELFARE COMPUTER PROGRAMS 37

iv onomic Welfare Analysis

An Application to the SWOPSIM Modeling Framework

Haley WAITE MEMORIAL BOOK COLLECT40.N Stephen L. DEPARTMENT OF AGRICULTURAL AND APPLIED ECONOMICS Praveen M. Dixit 232 CLASSROOM OFFICE BLDG. 1994 BUFORD AVENUE, UNIVERSITY OF MINNESOTA INTRODUCTION ST. PAUL, MINNESOTA 55108

Economists generally agree that government intervention in agricultural markets generates efficiency losses. However, most numerical models in agricultural economics literature have focused largely on the quantity and stability of agricultural polices, rather than the associated inefficiencies. Many agricultural models have been designed to evaluate the expected budgetary costs of agricultural programs, project market conditions, or analyze quantity responses to shocks. They are rarely designed to address the welfare implications of policies for consumers and producers or the efficiency losses associated with agricultural programs. The Food and Agricultural Policy Simulator (FAPSIM), one of the major tools used by the U.S. Department of Agriculture (USDA) for numerical policy analysis, details production, consumption, prices, policies, and government costs associated with every large agricultural sector (4).1/ Yet, it ignores traditional welfare and resource efficiency measures. The same is true of other widely used agricultural models, including WHEATSIM (6), POLYSIM (10), and FAPRI, (9). Modeling the details of agricultural programs is preferred over more carefully treating the welfare consequences of domestic agricultural policies.

The absence of welfare analysis is especially apparent in global agricultural models, which evaluate the trade-distorting effects of domestic agricultural policies. Only a handful of agricultural models can calculate global gains and losses from trade-distorting effects of policy. For example, the Bale and Lutz (1) partial equilibrium model analyses welfare costs of agricultural policies in several countries, the Valdes and Zeitz (13) computable general equilibrium (CGE) model examines the global welfare effects of agricultural liberalization, and the Tyers and Anderson (12) model examines the welfare and stability effects of global agricultural protection. The Tyers and Anderson model attempts to calculate some of the income-compensated measures of welfare, a feature rarely seen in any large model, agricultural or nonagricultural.

The general neglect in agricultural models of welfare and efficiency costs of government programs can be traced to a number of factors. First, efficiency of resource use is usually not a major concern to policymakers. When agricultural policies are instituted to improve income distribution, the loss of efficiency to bring about more equitable distribution is not very important

1/ Underscored numbers in parentheses refer to items in the References.

1 to policymakers, the demanders of information from such models. Second, since the tradeoffs that concern agricultural policymakers are between producer incomes and budgetary costs, most agricultural models address welfare issues only to the extent that they include budgetary information. Third, since agricultural policy matters have largely ignored consumers, agricultural models have devoted very little attention to consumer behavior in general and to welfare information in particular. Fourth, many agricultural economists do not have much confidence in the standard welfare measures. Consumer and producer surpluses and deadweight losses, the most commonly used welfare measures, have shortcomings and are valid only under certain restrictive conditions.

The objective of this report is twofold. First, it defines the concepts of consumer and producer surpluses, explains some of their weaknesses, and provides conditions under which they may be considered appropriate measures of welfare. Second, it uses an already existing model, the Static World Policy Simulation model (SWOPSIM) (11), to illustrate how to incorporate welfare measures into an example modeling framework. The report also explains how one accounts for sectoral welfare implications in a multimarket framework. The report concludes with technical information on the use of these measures in the standard SWOPSIM framework.

ECONOMIC SURPLUSES AND WELFARE IMPLICATIONS

This section focuses on standard Marshallian and Hicksian measures of economic surpluses. It also applies these concepts in international trade and examines their appropriateness in empirical analyses. Readers familiar with the concepts of welfare economics could proceed directly to the example modeling framework described in the next section.

Consumer Surplus Concept

Dupuit introduced the concept of measuring social benefit in 1844. He argued that the social value of a good is greater than the price actually paid, since most consumers would be willing to pay more than the going market price. Total benefits to the consumer for consuming a quantity of good are the aggregate of maximum prices that would be paid for successive units of the commodity. Consumer surplus was defined as the difference between total benefits and total costs to the consumer.

Marshall, following the work of Dupuit, based his concept of consumer surplus on the diminishing marginal utility of a commodity, emphasizing that a consumer derives surplus utility from being able to buy a commodity at a particular price. But, since utility is not directly observable, Marshall needed a money measurement of welfare change that could be uniquely related to utility changes. He defined consumer surplus as "the excess of the price he would be willing to pay rather than go without the thing, over that which he actually does pay." As a measure of this revealed willingness to pay in terms of money, Marshall used the triangular area under the demand curve and above the rectangle to represent the actual money expenditure of the consumer.

In figure 1, this is measured by the triangular area A, where Po is the price of the good. The benefits to the consumer of a price reduction from Po to P1 is given by the area B+C, since this is the increase in the triangular-like area resulting from the price fall.

2 Consumer Surplus and Path Dependency

While consumer surplus appears to be a useful construct in consumer welfare measurement, the change in consumer surplus is not well defined for the path-dependency problem, where several prices change simultaneously.

Consider the case in figure 2 of two substitute commodities Ql and Q2, where prices for the two increase from P10 and P20 to P11 and P21, respectively. If the price of Ql is first changed from Plo to Pll, the consumer loses area U under the demand curve Di(P20) in panel 1. In the process, the demand curve for Q2 shifts from D2(P10) to D2(P11), and given the higher price for Q2, the consumer loses an additional area X+Y in panel 2.2/ If the increase in Q2 is considered first, the consumer initially loses area X in the Q2 market, and then loses an additional area U+V in the Ql market following the increase in price of Qi. The resulting measures of welfare gains associated with the two paths--areas U+X+Y and U+V+X--generally will not be equal unless area Y equals area V. Area Y would equal area V if dq1/dp2 = dq2/dp1 at all sets of prices. The Slutsky conditions show that the slope equality will hold if the income elasticities for the two goods are the same. For a more general situation where a subset of consumer prices changes, the uniqueness of consumer surplus will hold if all income elasticities for the subset of goods with changing prices are equal.

Consumer Surplus and Utility Measurement

We established conditions for a unique measure of consumer surplus. These conditions, however, do not guarantee that changes in consumer surplus provide

2/ Although areas s, t, w, and z also have welfare significance, we have ignored it for this discussion. The rational for such an approach is explained on pp. 33-34.

Figure1 Consumer surplus concept

Price

A

1

Qo al Quantity

3 a unique money measure of utility change. In other words, depending on how an individual values the conversion of money to utility, the same income change may lead to a much different change in utility. In figure 3, for instance, if an individual has utility function U1, an equivalent income change leads to much greater changes in utility at lower levels of incomes than at higher levels of incomes. On the other hand, with utility function U2, the associated change in utility is the same regardless of the initial level of income. Hence, an unambiguous conversion of the surplus change into utility change can be made only when the slope of the utility function is constant (that is, when the marginal utility of income (MUI)--the conversion unit between money and utility--is constant).

Hicksian Measures of Consumer Surplus

To overcome the very restrictive assumption concerning the constancy of the marginal utility of income, Hicks introduced four measures of the change in a consumer's welfare from an actual or proposed price change: compensating variation, compensating surplus, equivalent variation, and equivalent surplus. Substantial agreement exists that these represent the correct quantities to be measured. But, we focus on compensating and equivalent variation because these are the only two measures that allow the consumer freedom of choice in responding to changing economic conditions.

Compensating variation (CV) is the amount of compensation, paid or received, that will leave consumers in their initial welfare positions after the change in price if they are constrained at the new price to buy the quantity that they would have bought at that price without compensation;

Equivalent variation (EV) is the amount of compensation, paid or received, that will leave consumers their subsequent welfare positions without the price change if they are free to buy any quantity of the commodity at the old price.

Figure 2 Consumer surplus and path dependency

Price Price

X „ D kP21)

D1( P20)

Quantity Quantity Panel 1 Panel 2

4 Figure 3 Consumer surplus and utility measurement

Utility U2

U1

A M Money income

Figure 4 illustrates these two Hicksian measures and their relationships to Marshallian consumer surplus. Consider consumers with income Yo initially in equilibrium at point A. As the price of the good in question falls from Po to Pl, the consumers move from point A on the indifference curve Jo to point B on Ji. YoYi is the CV measure of the consumer welfare change and represents income that could be forgone while re-establishing equilibrium at point E with no change in utility. Y0Y2 is the EV that establishes the increase in income that would be required to achieve the utility level equilibrium at the lower price should the initial price levels prevail (point F).

In panel 2, an ordinary demand curve DoDo is derived from the indifference map in panel 1. When the price falls from Po to Pi, the consumers increase their purchase from X0 to Xi. If consumers have to pay the CV of YoYi, they will end up at E' instead of at B'. Hence, the curve A'E'G' is the compensated (or Hicksian) demand curve from the point A'. B'F'H' is, similarly, the compensated demand curve as consumers are kept at the indifference curve Jl.

As price falls continuously from Po to Pl, the amount of money that can be taken from consumers while leaving them just as well off as without the fall (indifference curve Jo) is area PoPlE'A', the area under compensated demand curve A'E'G' (=CV). The EV of the price fall is area PoPO'F', the area under compensated demand curve B'F'H'.

The Marshallian measure is the area PoPiB'A', the area bounded by the price lines and the ordinary Marshallian demand curve DoDo. Comparing these measures for the case of a single price fall, CV and EV form the lower and upper bounds, respectively, for the Marshallian consumer surplus. The inequalities reverse for a price increase. If the income effect is zero, the consumer demand is not affected by the payment of compensation, and the compensated demand curve coincides with the ordinary demand curve. In this

5 Figure 4 MarshaMan and Hicksian surplus measures situation, the three measures are equal, and the Marshallian measure of 1 consumer surplus would provide a true measure of the change in consumer welfare.

Producer Surplus Concept

Marshall introduced producer surplus, like consumer surplus, to demonstrate that sellers, like buyers, may receive some sort of a surplus from a transaction. Producer surplus is represented by the area above the supply curve and below the price line.

In the short run, the area above a competitive firm's shortrun product supply curve and below the price line represents the excess of gross receipts over total variable costs. This surplus, equivalent to "quasi-rent," is due to the shortrun fixity of some production factors. It is an exact measure of the change in producer welfare of a price change because it represents the sum of money that when taken away from (given to) the producing firm, leaves it just as well off as if the price did not change.

Producer surplus differs from profits in that it does not account for fixed costs. Hence, changes in profits are usually appropriate measures of shortrun producer welfare after a price change but not always. When the firm is forced to cease production, profit is an inappropriate measure of CV and EV because it does not include the fixed costs that the firm would incur despite ceasing production (fig. 5).

If the price were to increase from Po to Pl, then both producer surplus and profits would be A and would represent the compensation required to make the producer as well off as without the price change. If the firm were to subsequently go out of business, the true welfare cost to the producer would be A+B, whereas the reduction in profits would be only A.

Figure 5 Producer surplus and profits

Price

P1

Po = ATCo

AVCo

Quantity

7 Earlier we showed that consumer surplus is not necessarily a unique measure of welfare in a multimarket (path) framework and could differ depending on the market in which the measurement is made. With producer surplus, however, there is no such ambiguity in measurement and the net welfare effects of a price change can be measured either in the output market using the product supply curve or in the input market using the demand curve. This is shown in figure 6 for a firm that uses a single variable input. If input and output prices were to simultaneously change from Wo to W1 and Po to Pl, respectively, then the change in producer surplus in the output market is A+B+D, while the change in consumer surplus in the input market is X+Y+Z. Both of these areas measure quasi-rent and are equivalent, indicating that the welfare effects of a price change in the final goods industry can be measured either in the input or the output markets.

The surplus can also be measured sequentially, using both the input and output markets. Moving from Po to P1 and holding W fixed at Wo results in an additional change in rents equal to Y+Z. Thus, overall change in quasi-rent is area A+Y+Z. The input price could alternatively be changed first with P fixed at Po, obtaining area Y. Then changing P at W=W1 obtains area A+B+Y. The change in quasi-rent (e) associated with the dual price change from Po to P1 and from Wo to W1, thus, has at least four representations in figure 6:

R.* A+B+D = X+Y+Z = A+Y+Z = A+B+Y

In the long run, the concept of producer surplus gets a bit nebulous. For a perfectly competitive firm, total revenues equal total costs with no excess profits. Thus, the area above such a curve and below the price line says nothing about the welfare of owners of firms. Hence, if producer surplus refers solely to gains by the owner of a firm, then in a perfectly competitive

Figure 6 Alternative measures of producer surplus

Price Wage

S (wo) Si(wl

1 A

D1( P1)

Do(Po)

Quantity Quantity Output market Input market Panel 1 Panel 2

8 siLuation, it only has shortrun relevance and is formally equivalent to a quasi-rent due to the firm's ownership of fixed factors.

So far, we have considered only a perfectly competitive industry. In an imperfectly competitive industry, firms may receive both a longrun and a shortrun surplus because nothing ensures zero excess profits in the long run. Such a surplus results from some degree of market power. In a monopoly, it is a rent from being the only seller in the market.

Efficiency Loss Concept

Efficiency losses are the economic costs borne by consumers and producers when distortions in an economy prevent it from achieving a competitive, Pareto optimal equilibrium. They represent a situation of net welfare loss to society. In figure 7, Do represents the aggregate demand and So the aggregate supply of commodity Q. In a perfectly competitive market with no distortions, market equilibrium price is Po and quantity Q0. If the Government were now to introduce a specific sales tax of P1-P2 on the supplier, the quantity of Q traded would fall from Q0 to Qi. Consumers would be faced with a higher gross price of Pl, while producers would obtain a lower net price of P2. The policy-induced change lowers consumer surplus from the competitive situation by A+C, the partial equilibrium cost of this change to consumers. Producer surplus similarly would fall by B+D, given the lower net supply price resulting from the tariff. Some of the loss in consumer and producer surpluses (area A+B) goes to the Government as tax revenue.

Area D represents a loss to society because resources that were previously used efficiently in the production of Q are either not being used or are being used in a second-best manner. Area C is a deadweight consumption loss because consumers allocate expenditures away from the now more expensive Q to other

Figure7 Efficiency loss concept

Price

So

1 A

Do 2

a ao Quantity

9 things. Area C is the part of real income lost by consumers because of the price increase from Po to Pl, with no other compensation in price or real income. The aggregate of area C+D is the efficiency loss to society resulting from the tax and can be viewed as the implicit price an economy pays for the accumulation of tax revenues.

Welfare Analysis and International Trade

We now apply the concept of economic surplus. Most countries engage in international trade and usually gain from it. The possibility of measuring this gain has appealed to many economists. An obvious approach is to treat the gain as an economic surplus arising from the opportunity to exchange goods with other countries. Various suggestions have been made as to how gains from trade might be defined and measured in this way.

One approach to measuring gains from trade is to use a general equilibrium framework that uses a country's offer curve. Exact measures of economic surpluses to a country's gains from trade can be estimated from these offer curves. The difficulty with a general equilibrium approach of this type, however, is that estimating actual gains could lead to questionable results (2). Moreover, many of the important issues in international trade, such as tariffs, quotas, or subsidies, do not involve changes of economywide magnitudes as implied by general equilibrium analysis. Under such circumstances, analyzing trade issues with partial equilibrium models may be more useful and easier from an empirical viewpoint.

One of the more widely used tools of partial welfare analysis is the three-sector diagram. Figure 8 presents a model of a competitive market in which two countries (exporter X and importer M) trade one commodity. The demand and supply curves for X and M in panels 1 and 3, respectively, are aggregate demand and supply curves, with price expressed in a common currency. Panel 2 gives the aggregate excess

Figure 8 Gains from trade in a partial equilibrium framework

Panel 1 Panel 2 Panel 3 Price Price

Pp P P

Pw

1

M1 A1 E1 B1 x X X U R G N1 Quantity i o 2 Quantity 1 1 1S1 D1 Quantity

10 supply (ES) and excess demand (EDo) curves for X and M, respectively. The excess supply curve depicts the amount that X will sell at each price, while the excess demand curve shows the amount that M is willing, to pay at each price.

If both X and M were closed economies, they would be producing 0E1 and 0G1 amounts of the commodity at domestic equilibrium prices of P1 and P2, respectively. But since price is higher in M than in X, M has an incentive to buy from X. With free trade, the price in X would rise and that in M would fall until prices in the two countries equalize and the export quantity from X (A1%) exactly equals the import quantity of M (U1D1).

The welfare effects of opening trade can be examined by evaluating the effects of a price change to P in each country. Producers in X gain area E+F+G+H, and consumers lose area E+F+G. Thus, X gains area H, which is equal to area M in panel 2. Producers in M lose area R+N, while consumers gain area N+Q+R+S+T+U. Thus, M gains area Q+T+S+U, which is equal to area K+L in panel 2. Both countries gain from opening trade, even though only one country buys from the other.

The overall trade gain is area K+L+M, (that is, the area behind the excess demand and excess supply curves). Gaining from trade does not necessarily benefit everyone in both countries. Rather, everyone could potentially be no worse off, and at least one person could benefit. For instance, producers in X could bribe (compensate) consumers to accept trade, while the reverse is true for M.

Consider the situation in panel 1 where the government introduces a price support program (Pp)in X. Consumption in X falls from 0A1 to 0111, while production increases from 0B1 to ONI. If X prices itself out of the export market by setting its price at Pp, production in M would increase from 0U1 to 0111, while consumption would decline from 0D1 to 051. The government in X can enforce price Pp by purchasing N1-M1, which just makes up the difference between supply and demand, including exports, at that price.

The welfare effects of the price support program can be seen in figure 8. Consumers in the X lose area A+B, while producers gain area A+B+C. The government in M is forced to purchase the quantity MINI, and taxpayers incur a cost of B+C+D+F+G+H+J+Y.

The net welfare cost to X is B+D+F+G+H+J+Y. The net welfare cost does not include area C because that amount represents the income transfer from foreign buyers to producers in X and is not a cost to X. Area B is the consumer surplus loss as the amount MiAl is internally priced at Pp rather than domestically consumed and priced at Pw. Area D is the part of the treasury payment that covers the extra variable costs of drawing resources into production of BINI and is an efficiency loss to society. It represents the fall in net value of the economy's output as resources are transferred from elsewhere into subsidized production of the good. Consumers in M are faced with higher prices and a welfare loss of R+S+T+U. Producers, on the other hand, gain area R, providing a net welfare loss to M of S+T+U. Area T represents the income transfer from X to M, while S measures additional payments to variable inputs needed to attract them away from other uses into the sector so that domestic output can expand from 0U1 to ORi. Area U is the deadweight consumption loss because consumers allocate expenditures away from the good under consideration. It is the part of real income lost by consumers because of the price increase. Global welfare loss (area Z in panel 2),

11 resulting from the price support program, is the sum of regional losses. This illustrates that the government can never increase global welfare in a Pareto- superior fashion by changing output price or quantity in either direction from the competitive equilibrium.

Measuring Welfare in a Multimarket Framework

Our analysis, so far, has assumed that prices change only in the market under consideration. Under such circumstances, measuring economic surpluses is rather straightforward. Consumer and producer surpluses are calculated using the demand and supply curves of the market under consideration. In most trade policy analyses, however, the assumption that prices change only in a single market is unrealistic. An import quota on beef, for instance, would not only affect the beef market but also other markets, such as pork, poultry, and grains. Economic agents involved in markets other than the market under consideration can experience important economic welfare consequences. These consequences need to be taken into account in any decision regarding the adoption of policy.

Just, Hueth, and Schmitz have established two alternative approaches to measuring the economic welfare effects of intervention in a multimarket situation (7, pp. 172-214). One approach is to estimate general equilibrium supply and demand in the market for which a change in policy is considered and in any distorted market for which effects of the change must be taken into account. An alternative approach is to estimate a system of partial equilibrium supply and demand relationships for all markets for which effects may be substantial.

Equilibrium distributional effects can then be determined by solving the system of supply and demand equations for equilibrium prices before and after a contemplated change and then sequentially evaluating partial welfare effects on each market group.

Figure 9 illustrates these two approaches to measuring welfare effects of intervention in a multimarket situation. We confine our illustration to measuring producer surplus in a vertically integrated market. A similar logic holds for measuring consumer surplus (see (7) for more detail).

Figure 9 depicts a competitive final-goods industry (beef) that uses a single factor of production (corn) where the input-producing industry (corn) is also competitive but faces perfectly elastic supplies (fixed prices) for all factors of production. The final-goods industry is initially confronted with input price Pco and output price Pbo and producer output Qbo along its shortrun supply curve Sb(Pco)- Suppose the government intervenes, and output price falls to Pm. The final-goods industry will initially adjust to output along its shortrun supply curve to Qb2 because individual producers do not perceive the effects of their action on prices. Since the industry is assumed to be the sole user of its input 0c), the input price will not remain at co'P A decrease in output price causes a decrease in derived demand for the input from Dc(Pbo) to Dc(Pb1)* Given input supply Sc, input price, thus, decreases from Pco to Pc1. In turn, the lower input price decreases,cO'st for the final-goods industry. Hence, its supply shifts from Sb to New equilibrium (Pco) / 5b(c1)• output is 0,b1, and price is Pm.

12 Consider S*, which passes through the initial and final equilibrium points, Pbo and Qb1, respectively. It can be interpreted as the competitive supply curve for the final-goods industry, which allows for equilibrium adjustments in the input market for output price changes. Thus, it can be called an equilibrium supply curve and is different from an ordinary supply curve like Sb(Pco), which indicates how the industry will respond to alternative output prices given that all input and other output prices are fixed. The important property of an equilibrium supply curve is that the change in producer surplus associated with it measures the net change in quasi-rent for all affected producing industries for which adjustments are considered in the supply curve.

Welfare measures implied by the two approaches can now be illustrated. The first approach would require estimation of the .general equilibrium supply * curve S and measurement of area U+V. This U+V area would represent the sum of producer surplus in both the beef and corn industries. One would obtain joint welfare_of both sectors, but distributional effects between tbe_two sectors ,would nOi)be available. The-second approach would require estimation of partial equilibrium curves De(Pb), De(Pb1), Db(Pe), and Db(P ei) and measurement of area A+D. A+D is equal to (A-C)+(C+D), where A-C is the change in quasi-rent in the beef market (equal to area U-Z) measured in the corn market, whereas area C+D is the loss in quasi-rent for the corn industry. The welfare effects are calculated from partial equilibrium supply and demand curves in each market, and equilibrium distributional effects can be determined for both the corn and beef sectors.

We confined illustration to producer surplus in a vertically integrated industry. This same logic, however, can be extended to account for other market structures, including producer or consumer welfare measurement in a horizontal market. One can generally measure welfare effects with general

Figure 9 Producer surplus in multimarket framework

Panel 1 Panel 2 Price Price

co Pc1

ocl aco Quantity 0b2 b1 QIN) Quantity

13 equilibrium curves in the distorted market or account for it through partial equilibrium curves in interrelated markets. The actual choice in applied analysis depends on a number of considerations, including data availability and ease of estimation.

Problems in Usin Economic Su •luses in International Trade

The change in welfare resulting from trade policies can be examined by using an aggregate demand and supply curve in each country or excess demand and supply curves for both countries (fig. 8). However, two very, important implications arise in the use of partial analysis in trade studies: (1) cross-country welfare comparisons require a global indifference curve, and (2) the demand curves need to be compensated Hicksian demand functions. These implications require some rather strong assumptions, which we now examine.

Aggregation

A global welfare indifference curve assumes the additivity of individual preferences into community indifference maps. One set of conditions that is required for this additivity assumption is that preferences are identical and homothetic.

Assuming identical utility for all individuals is a rather strong condition. Interpersonal comparison of utility involves value judgments and stretches beyond the scope of positive economics.

Homothetic preferences imply that goods are consumed in the same ratio at the same relative prices regardless of income level. This in turn implies that the income elasticity of demand for each good is unity and that the marginal utility of income is the same not only across individuals but across all income levels.

Both assumptions are highly questionable. Economic theory says that income elasticities of demand for goods alter with income levels. An individual with a low income base is less likely to spend a larger proportion of the increase in income on luxuries than an individual with a high income base. Across countries where tastes differ, a much more pronounced effect is expected. Consumers in less developed countries are likely to spend a larger proportion of their increased income on food than consumers in developed countries.

Marginal utility of income is not the same across either income levels or individuals. An additional dollar is unlikely to provide the same level of utility at lower levels of income as at higher levels of income. Even among individuals with similar income levels, an additional dollar is likely to be valued differently by different individuals, especially among heterogenous individuals, which would be the case in cross-country comparisons of welfare.

Both assumptions about aggregation are extremely strong and, in the real world, unrealistic. Thus, the validity of the concept of a global welfare function, which is crucial for welfare analysis, must be subject to question.

Income Effect

A true measure of welfare using the Marshallian consumer surplus can be obtained only if the demand curve is Hicks compensated and utility is held at A the level that prevailed before the policy was imposed. This means that the

14 aggregate demand curve should take into account only the substitution effect of a change in price with corrections for changes in real income.

However, compensated demand curves are extremely difficult to estimate empirically. Marshallian demand curves, therefore, are used to examine global welfare, assuming that the income effect for the good in question is zero or negligible and that the proportion of budget spent on the good is very small. These characteristics appear to be true for agricultural products in developed countries in which the income elasticity of demand and the proportion of income spent on agricultural goods is normally low. Food usually accounts for a large proportion of the budget in developing economies, and changes in income could affect agricultural demand. As Cochrane points out, consumer surplus may consequently be relevant only to such goods as safety pins for which the income effect is negligible.

Distributional Issues

One major obstacle in the use of economic surpluses has been the argument that consumer surplus does not take into account changes in income distribution. The concept of economic surpluses assumes a "one-to-one weight" on the transfer of surpluses. In other words, a dollar's worth of economic surplus . provides equal satisfaction no matter to whom it accrues: consumers, producers, or taxpayers.

Harberger questions the importance of this assumption by arguing that changes in income distribution resulting from a particular measure are likely to be minimal when compared with those that occur from decade to decade or from year to year as a consequence of all changes in gross national product (GNP). However, accepting the notion that distributional weights are of little consequence in an analysis just because the same is not demanded for GNP estimates hardly appears feasible. Moreover, cross-country distributional effects can be of major importance to a small country engaged in international trade with a large partner. A preferred approach would be to devise a system where some distributional criteria can be used in the economic surplus analysis.

Demand and Supply Prices

TWO crucial assumptions for the proper use of economic surpluses as a measure of welfare are: (1) the competitive demand price for a given unit measures the value of that unit to the consumer, and (2) the competitive supply price for a given unit measures the value of that unit to the supplier (5). Both are strong assumptions. The Pareto optimality condition that price equals marginal cost is an exception rather than a rule. Externalities and other disruptive nonmarket forces often create a divergence between private marginal cost and social marginal cost. This problem magnifies the broader market base. Welfare analyses involving cross-country comparisons could be subject to a wide array of such problems.

Foreign Exchange

Related closely with the competitive market assumption is the question of exchange rate valuation in cross-country welfare comparisons. Developing countries generally overvalue their currencies. The market exchange rates, therefore, may not reflect the true costs of foreign currency to the country, and a shadow price (exchange rate) needs to be computed.

15 Hence, additional approximations would be involved in cross-country comparisons of welfare, and the method used in valuing the exchange rate may appreciably affect the analyses.

Consumer and Producer Surpluses as Approximations

Our discussion, so far, has illustrated that the use of consumer and producer surpluses involves some very restrictive assumptions. Despite these restrictions, the two surplus measures are still widely used in applied economic analyses. We postulate two major reasons for this. First, Marshallian surplus measures can be obtained rather easily. Most empirical economic models use Marshallian demand and partial equilibrium supply curves. Consumer and producer surpluses can be obtained directly from these models using the price and quantity information available. Calculating the Hicksian measures of surplus from Marshallian demand curves requires additional information on the income elasticity of demand, the proportion of income spent on the good, or specification of an implied utility function.

Second, as Willig has shown, consumer surplus can, under certain conditions, be an appropriate approximation for compensating and equivalent variations, the theoretically preferred measures of welfare (14). Willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the Marshallian measure derived from the market demand curve. His bounds, depending on the income elasticity of demand for the single good in the region of price change being considered and the proportion of the consumer's income spent on the good, demonstrate that the Marshallian consumer surplus is often a good approximation to Hick's consumer's surplus. Willig shows, for example, that if the consumer's income elasticity of demand is 0.8 and the area under the demand curve between the old and new prices is 5 percent of income, then the compensating variation is within 2 percent of the surplus, measured as the area under the demand curve. This approximation error is less than the estimated error allowed for national income estimates. Willig concludes that "at the level of the individual consumer, cost-benefit welfare analysis can be performed rigorously and unapologetically by means of consumer surplus."

Are These Measures Reseasonable?

Are the Marshallian measures or economic welfare reasonable for applied welfare analysis? We think so for a couple of reasons. First, they appear to provide a reasonable approximation to changes in income to producers, consumers, and the economy. Second, empirical estimates of these measures can be obtained rather easily from observed demand and supply curves. However, there are conditions under which their appropriateness could be questioned, particularly when the income elasticity of demand for the good in question is very high. Similar problems could arise if the proportion of budget spent on the good is high. Despite the many qualifications, we believe that Marshallian measures of welfare are available for applied welfare analysis. The next section illustrates how one modifies the SWOPSIM framework to incorporate these measures.

SPECIAL METHODS FOR MEASURING WELFARE

SWOPSIM is a framework used to create static world policy simulation models. The models created by the framework are located in spreadsheets and are

16 modified and solved as spreadsheets. SWOPSIM models are designed to simulate the effects of policy changes on production, consumption, and trade. The ' framework allows the construction of single-commodity or multicommodity world trade models.

The SWOPSIM models are characterized by an economic structure that includes constant elasticity supply and demand equations and summary policy measures. Trade is the difference between supply and demand as is the case in standard neoclassical net trade models. Models in the SWOPSIM framework use two measures to incorporate the effects of government policies on agricultural producers and consumers. The producer, subsidy equivalent (PSE) is a measure of the level of subsidy that would be necessary to compensate producers in terms of income for removing government support under current programs.

The consumer subsidy equivalent (CSE) is a measure of the level of subsidy that would have to be paid to consumers to compensate them for removing agricultural programs.3/

This section illustrates how the concepts of producer and consumer surplus can be measured through ,,,a special procedure to provide summary measures of changes in economic.welfare. The special procedure allows researchers to deal with theoretical concerns that the SWOPSIM default welfare measures are incapable of handling.

Because the use of producer and consumer surplus as welfare measures is controversial, we assume that users of SWOPSIM are cautious in using the measures to evaluate policy alternatives.

This section works from measuring welfare in a simple, single-good setting to more complicated settings of intermediate goods, joint products, supply controls, and the like. The emphasis is on the removal of producer subsidies because most agricultural distortions in developed countries take place in the producing sectors. Similar, but converse, arguments can be made for the agricultural consumption sectors. The next section shows how researchers can use SWOPSIM model results to calculate changes in economic welfare with the special procedure.

Measuring Welfare in a Single-Good Setting

Supply and demand equations in SWOPSIM are constant elasticity equations:

Qs = abp; (1)'

Qd = depg (2)

3/ The remaining figures in this report distinguish between demand and supply curves that incorporate PSE's and CSE's and those that do not. Solid lines represent the demand and supply curves that do not incorporate PSE's and CSE's. These curves are the "true" underlying demand and supply curves. Dashes represent the curves that do incorporate PSE's. The solid and dashed curves are vertically separated by the amount of the unit subsidy at each quantity level for which the curves are defined.

17 where: Qs = quantity supplied; Pp= producer price; a = exogenuous supply shifter; index of cross-price/quantity effects; .own -price supply elasticity; Qd = quantity demanded; Pcn = consumer price; = exogenuous demand shifter; index of cross-price/quantity effects; and own-price demand elasticity.

In the simple scenario where the world commodity price increases and there are no distortions, changes in producer and consumer surplus are the areas between the price axis and respective supply and demand' curves, with the new and old prices serving as top and bottom borders, respectively.

Figure 10 illustrates the surplus measures. Area A+B, the change in producer surplus, is a positive number since unit revenue increases. Area A, the absolute value of the change in consumer surplus, is a negative number (that is, a loss in consumer surplus) since the unit price of the commodity increases.

In view of the constant elasticity specification of supply and demand equations in SWOPSIM, equations 1 and 2 can be easily integrated between pa and pl to yield the formulas for producer surplus (PS) and consumer surplus (CS), respectively. These formulas form the basis for measuring welfare in SWOPSIM:

c 1(1+c) 0(1+c) PS = S abp dp = ab (p p (3) P P (ITC) P

Figure 10 Producer and consumer surplus in nondistorted equilibrium

Price

Supply

•••• MMMMM • •• • U• MMMMM • • al. • • • • • • • •• ...... •••MMMMM • • • • • • .11• Mill • U• • • • • • • • • • • U• • • • • • • • U. • Ill A

U.. Sill.• • • OOOOO 810...... U •• Ullt • 111 • • •• • • • 1111 • • Oa • U • • • • • .1 •• • • • • • • •..... • •• SO • • • • SU • MS • • • • •• • •

Demand

Quantity

18 _f ()(1-f) 1(1-f) A CS = S dep = de ( p (4a) cn dPcn cn -pcn (1-f) for f not equal to 1 _f o 1 A CS = - $ dep = de (1n(p ) - ln(p )) (4b) cn dPcn cn cn for f equal to 1

Figure 11 illustrates the case where the domestic supply curve shifts inward and the world price of the commodity increases as a result.

Area A still represents the change in consumer surplus. However, the change in producer surplus is no longer just (A+B). The original producer surplus is (C+D+E+F+G), and the new producer surplus is (A+13+F+G). Taking the difference between the new and old producer surplus shows the change is (A+B) - (C+D+E). The area (C+D+E) represents, the loss from the inward shift independent of the resulting price change.

A complication is that the supply curve is unlikely to be defined below a particular price, represented as Pmin in figure 11. At prices below Pmin, variable costs of production cannot be met and, thus, the alternative of zero production is more profitable. The change in producer surplus becomes (A+B) (D+E). If the shift in the supply curve is large, including area C in the surplus measure may seriously understate the gain in producer surplus. A similar scenario can be constructed for shifts in the demand curve. In that case, the researcher must consider a maximum price above which the demand curve is undefined.4/

4/ In the SWOPSIM programs described in the next section, the maximum consumption price is set at the higher of the initial or liberalized consumer price. A discussion in the next section explains this specification.

Figure 11 Producer and consumer surplus with supply curve shift

Price

= P'Zv •••••••••••••..... 111111• • ..... le••111•• • OOOOOO••••••••• 1111111•1111111 OOOOO /1111111•0111••••••••••••••••••••••••

Pmin

Quantity

19 Equation (3) must be revised to account for the shift in the supply curve cused by a decrease in the value of a in equation (1).

Since this scenario includes only one commodity, b, representing cross-price/quantity effects, is equal to 1. Let ao represent the initial value of a and al represent the terminal value. Equation (3) becomes:

1(1+c) p 0(1+c) 0(1+c) (l+c) PS = a b (13 ) + - a0)b (11 (3a) I w w al pmin (14-c) (1 +c) Since ao exceeds al, the second term shows the decrease in producer surplus resulting from the inward shift. If Pmin is set equal to zero, area C is subtracted from producer surplus.

Measuring Welfare in a Single-Good Setting with Policy Distortions

The SWOPSIM model framework fully captures a price wedge representing a policy distortion. In figure 12, the domestic market for good X is shown in panel 1, and the world market for X is shown in panel 2. The undistorted domestic supply curve is labeled S.

The dashed curve to the right and parallel to S in panel 1 represents the supply curve augmented by a government-granted PSE. The world excess supply curve (ES0) in panel 2 is fitted by the distance between the subsidy-laden supply curve and the domestic demand curve. Its intersection with the fixed excess demand curve for the rest of the world (ROW) determines the world price (Ps). The domestic quantity supplied is determined by the intersection of the world price line and the subsidy-laden curve. However, to produce this quantity, producers must be paid a unit revenue of P/9 as indicated by supply

Figure 12 Producer and consumer surplus with a production subsidy equivalent

Panel 1 Panel 2 Domestic market World market Price Price

OOOOO••.. •••..... •.•...... •• ESo A ...... • 1111.1111111•• •111•111.. • .4* F Sall• Ill• • OS • IIIII• • IN • ...... ••.••.••.

••*-

ED

ED:Excess demand ES= Excess supply Quantity Quantity

20 curve S. The distance, therefore, between Pa and P? represents the amount of the subsidy. Because there are no consumer subsidies or taxes, consumers purchase good x at world price P.

A trade liberalization scenario involves the full or partial removal of the subsidy. Assume that the subsidy is fully removed. Domestic production is curtailed, and the world excess supply curve shifts to ES1. The world price increases to P. For the change in domestic welfare, the producer price drops from its distorted level PIS to the new world level P. The resulting loss in producer surplus equals (A+B). The consumer price increases from Pa to P. The resulting loss in consumer surplus equals D.

Government expenditure is reduced by an amount equal to the unit subsidy times the initial amount of quantity supplied. This savings is equal to the sum of areas (A+B+C+D+E+F). The summation of government expenditure savings and producer and consumer surplus loss equals (C+E+F), a net gain to the country. A change in a CSE is handled similarly. Since the domestic supply and demand curves do not shift in this liberalization scenario, the formulas reported in equations (3) and (4) are sufficient for the producer and consumer welfare calculations.

Measuring Welfare in a Multigood Setting with Policy Distortions

When trade liberalization takes place in the context of more than one good, an action taken in one market can affect the outcome in another market. The effect depends on the degree of substitutability or complementarity between the various commodities. This effect can take place whether or not liberalization occurs in all commodity sectors.

Welfare calculation in a multicommodity setting has been explored in the earlier sections of this report. An important issue was the path dependency problem.

Here we assume the symmetry of cross-price effects in both supply and demand. What matters for a welfare analysis is not a particular ordering of commodities, but rather that an ordering is imposed a priori to avoid double counting the welfare effects.

Figure 13 illustrates a scenario for two goods X and Y where PSE's are simultaneously removed. The goods are assumed to be highly substitutable in supply. If we were to analyze each of the markets in isolation (that is, without regard to the cross-price effects), then panel 1 for good X and panel 4 for good Y would show the effect of the removal of the PSE's in each market. Net welfare improvement for sector X would be (C+E+F) and for sector Y, (N+V+P). However, the assumption of substitutability between X and Y implies that the respective supply curves shift rightward. In this case, the welfare values reported above underestimate the gain. The rightward shifts are what actually, are observed. These shifts cause the corresponding world market excess supply curves to shift rightward, resulting in new world prices for X and Y. Panels 3 and 2 illustrate these shifts. Use of these panels for welfare analysis of each commodity yield a net welfare improvement of (I+E+J+K+L) for X and (T+V+W+X+Z) for Y. As long as the magnitude of the supply curve shifts is not excessive, area (C+F) in panel 1 is approximately equal to area (I+K) in panel 3 for good X. For good Y, area (N+P) in panel 4 is approximately equal to area (T+X) in panel 2. The total welfare gain for both sectors implied by panels 2 and 3 exceeds that implied by panels 1 and 4 by (J+L) plus (W+Z).

21 Figure 13 Producer and consumer surplus n a wo-good setting

Panel 1 Panel 2 Price of Domestic market for Price of Domestic market for good X good X good Y good Y

•• • • • • • • OM V

Pmin

Pmin

Quantity of good X Quantity of good Y

Panel 3 Panel 4 Price of Domestic market for Price of Domestic market for good X good X good Y good Y

DO r P pi = p1 P w rw • H ••••••••••• ....."••••• • •

Pmin

P min

Quantity of good X Quantity of good Y

22 The second set of welfare measurements (panels 2 and 3) overstates the welfare gain as the first set (panels 1 and 4) understates the gain. The total change in producer surplus for the two sectors is a function of prices Px and Py:

A PStotal = I 1[0 QY] dpx dpy

Given the order of integration, the function is evaluated with respect to px, given initial py. Then the function is evaluated with respect to py, given the new level of px. The change in total producer surplus equals (C+E+F) plus (T+V+W+X+Z). Recalling that area (Ni-?) is approximately equal to area (T+X), producer surplus is greater than the total implied by panels 1 and 4 by area (W+Z) and less than the total implied by panels 2 and 3 by area (J+L).

If the order of integration is reversed, the function is evaluated with respect to py, given initial px, and.then with respect to px, given the new level of py. Recalling that area (C+F) is approximately equal to area (I+K), the change is equal to (C+E+F+J+L) plus (N+P+V). In this case, the total exceeds that implied by panels 1 and .4 by (J+L) and is less than that implied by panels 2 and 3 by (W+Z).

Which order of integration is preferred? It should make no difference if the cross-price effects are symmetric (that is, if aQpaPy = aq/811x). In this case, area (J+L) equals area (W+Z). If for some reason the effects are not symmetric, the answer will differ according to the order of integration. Both integration orders should be tried, and changes total producer surplus should be compared.

Distributional effects are important for reporting purposes. If one were interested in consolidating support for trade liberalization, showing how trade liberalization would affect the welfare of individual producing sectors would be important. The welfare of any particular sector could be affected significantly by the order of integration that the researcher has imposed to correctly estimate the total welfare change. This concern implies that the researcher should vary the order of integration and carefully examine the changes in individual producing sectors. Reporting a range of values rather than a single value may be advisable.

Sectoral government expenditure can vary according to the order of integration. If the per-unit subsidy in a particular market is fixed, a policy change in the market for a substitute good can influence total expenditure in the market of concern. Even if the PSE changes in that market, budget savings will differ according to the order of integration. In the example, budget savings for good X will be either (A+B+C+D+E+F) or (A+B+D+E+H+I+J+K), depending on the order.

Measuring Welfare with Intermediate Goods and Final Goods

The SWOPSIM structure accommodates shifts in derived demand for intermediate goods. The quantity supplied of the final good is exponentially adjusted by a constant elasticity value. The quantity then enters into the demand schedule of the intermediate input as a shifter. The constant elasticity is equal to the share of the intermediate good demanded for producing the supply of the final good. For example, if beef producers have historically demanded 60 percent of the domestic corn crop, then the quantity supplied of beef taken to

23 the power of 0.6 enters the demand function of corn. In equation (2), this relationship is expressed as:

e = QSgaf *(other cross-price/quantity effects) (5)

Changes in the consumption price of the intermediate good cause the final good supply curve to shift. For instance, a decrease in the consumption price of corn causes the livestock supply curve to shift rightward because corn is an intermediate input into livestock production.

explored We total welfare changes in the context of intermediate goods earlier in this report. 5/ Two approaches can be used to examine total welfare changes: the "general equilibrium supply and demand" approach or the "partial equilibrium supply and demand" approach. Although SWOPSIM can accommodate either approach, we adopt the partial approach to keep track of the distribution of welfare effects among input suppliers and final goods producers. For example, most agricultural sector models include livestock and dairy sectors on one hand, and grain and oilseed sectors on the other. If the livestock and dairy sectors exhausted total domestic demand for grain and oilseeds, total welfare changes could be calculated by reference to either set of intermediate or output markets. However, we want to allocate the ,total welfare change to each of the individual sectors. This allocation would be advisable for using model results to show the effects of trade liberalization on individual sets of producers.

Figure 14 shows domestic markets for the final good Y in panel 1 and for the intermediate good X in panel 2. All of good X used domestically is for production of good Y. PSE's are removed in both sectors. Since the domestic price of Y decreases, quantity supplied of Y decreases. The derived demand for X shifts from Do to Di as a result. Assuming no other interactions between sectors, producers' loss for Y is A and producers' loss for X is (S+T+U). Consumers' loss for X is (T+W+X).

Because sector Y demands all the domestic product of sector X, all consumption of X is a variable cost to sector Y, which should be reflected by the area below the marginal cost curve of sector Y.

Accounting for distributional gains and losses in a trade liberalization scenario is important. In the example, because all domestic demand for X originated in the Y sector, 100 percent of the loss in consumer surplus independent of T is a net loss to Y producers. The fact that subsectors within the overall agricultural sector can be identified as customers of other subsectors can generally be used to more fully show the distribution of benefits and costs of the liberalization. The loss in producer surplus in sector Y could be shown as the area between the original supply curve and the shifted supply curve. Panel 3 shows that, if the Y supply curve shifts from So to Si due to the rise in price of intermediate good X, producer surplus declines by (A2+C2+F).

If charting distributional effects among producing sectors is important in a trade liberalization scenario, adding the amount of the intermediate good's consumer surplus to producer surplus in the final good's sector is possible. When specifying the order of integration in the country welfare spreadsheet (more fully described below), the researcher should require that the

5/ See the section "Measuring Welfare in a Multimarket Framework," p. 12.

24 Figure 14 Producer and consumer surplus with an intermediate good

Panel 1 Panel 2 Price of Domestic market for Price of Domestic market for good Y final good Y good X intermediate good X

•

60.OOOOO OOOOO A : . D v E OOOOOO OOOO OOOOO ...... •.•

Quantity of good Y Quantity of good X

Panel 3 Price of Domestic market for good Y final good Y

Quantity of good Y

25 intermediate good consumption price change before the final good production price. The cross-price term in the final good supply function will be evaluated at the liberalized consumption price of the intermediate good. The cross-price term in the intermediate good demand function will be evaluated at the original quantity supplied of the final good. This ordering will allow the change in the intermediate good consumer surplus to be counted in the final good producer surplus. Any indicated change in the intermediate good consumer surplus will not be associated with the derived demand relationship.

Joint Products

Joint products are produced jointly from one base product with yield ratios determined by quantity relationships and perhaps relative prices. SWOPSIM handles joint products in two ways. In the first, the elasticity of a joint product with respect to total demand for the base product is unity. The supply equation for a joint product is in constant elasticity form with the quantity demanded of the base product in the supply equation with an elasticity of unity. In the second way, the SWOPSIM user embeds joint product technical relationships and symmetry and homogenity conditions in the various direct and cross-price elasticities. Whichever way is used, the following example is applicable to both.

Figure 15 shows the removal of PSE's for base product X and for derived prod- uct Y. We assumed that the country has world market power in X but not in Y. In the market for X, the producer price falls from 11 to Pp, and the consumer price increases from pa to P;/ which is now equal to P. In the market for Y, the producer price drops by the amount of the subsidy. The decrease in the producer price of Y causes the base demand to shift from Do to Dl. Consumers of X lose area (B+E+F). If there had been no liberalization in the market for Y, consumers would have lost area (E+F). Thus, area B is the

Figure 15 Producer and consumer surplus for joint products Market for base product X Market for derived product Y Price of good X Price of good Y

P°i3i3 OOOOOOOOO••... B AOOOOO D P w ••••. P0 ••••••OOOOO ••••1•0:•••OOOOO

Quantity of Quantity of good X good Y

26 loss in X's consumer surplus due to the joint product relationship with Y. Producers of X lose area (A+B+C) and are unaffected by the demand curve shift. The increase in the consumption price of X causes Y's supply curve to shift leftward. The loss in producer surplus is the area [U+V+W+X+Z]. With no liberalization in the product X, the loss would have been only area [U+V+W+X]. Thus, area Z is the loss in Y's producer surplus attributable to the joint product relationship. Consumers of Y are unaffected.

The researcher must be careful not to double count welfare effects. The researcher should evaluate the base product demand using the pre-liberalized product supply price. If this procedure is not followed, both areas B and Z will be counted in the total welfare change instead of in one or the other. In our ordering, area B is counted and area Z is excluded. It is probably advisable to sum the change in welfare effects across the base and derived products within a joint product sector. Necessary biases introduced by the ordering (underreporting the loss in producer surplus of product Y by excluding area Z) will be netted out in the total welfare change.

Producers of Y as consumers of X lose because the consumption price of X has increased. The problem from an accounting prospective is that the loss is reflected in both markets: as area B in the market for X and as area Z in the market for Y. Summing across sectors distorts the total welfare change because the loss is counted twice.

Supply Controls

The special SWOPSIM welfare framework can be used to model such supply control policies as set-asides. In figure 16, the country is assumed to have market power in the world market for product X. The goal is to limit domestic production to raise the world price of X form P° to P. Land is taken

Figure 16 Supply control for a large country

Price

tip

P°

Pmin

a Quantity

27 out of production, or "set-aside," The value of producer surplus will differ according to the way the policy is enacted. If less productive land is not targeted for the set-aside, the supply curve shifts from So to Si. The change in producer surplus is [A-(D+E+G)]. Policy measures may be directed at taking the least productive land out of production to reach a quantity or price target. In this case, the supply curve does not shift leftward. Instead, the original supply curve has a point of discontinuity at the desired quantity level. At this point (p in the figure), the supply curve becomes perfectly inelastic. The supply curve is Pmin abe Si. The change in producer surplus is (A+B-E).

Producer surplus will be higher in the latter case because less productive land is taken out of production. Because there is no distinction between productivity of resources in the first case, the land placed in the set-aside will tend to be of higher quality.

Note on Consumer Surplus

Earlier we discussed the necessity of specifying a minimum producer price below which a particular supply function is undefined. The same sort of reasoning holds for consumption where a maximum price should be specified.

For welfare calculations in SWOPSIM, the maximum consumer price is the higher of the initial or liberalized domestic price. This restriction yields a peculiar looking demand curve that is perfectly elastic up to the point where the horizontal line at the maximum price intersects the SWOPSIM-defined demand curve. The selection of the maximum price is in part pragmatic. Experiments with welfare calculations showed that changes in the area of consumer surplus above these prices could be unrealistically large, especially when the own-price demand elasticity approaches one. Some sort of limit has to be placed on the price above which demand for the product would not be defined.

In many cases, consumers of agricultural products are actually other agricultural producers, such as livestock and dairy producers who purchase feed grains and meal as intermediate inputs. Actual changes in production costs reflect a change in consumer surplus. In such cases, it makes no sense to talk of consumer surplus changes unless these changes are actually realized as changes in costs. Changes in consumer surplus above the maximum price are not translated into changes in production costs. They instead relate to the willingness to purchase rather than doing without the good in question. Although this willingness may have meaning in pure consumer theory, its meaning for derived demand is too vague to be included in welfare calculations assessing the effects of trade liberalization.

ALTERNATIVE, SPECIAL PROCEDURES FOR ANALYZING WELFARE IN SWOPSIM

There are two alternative procedures for analyzing welfare in the SWOPSIM modeling framework. The first procedure is found in the SWOPSIM spreadsheet, which solves the world model. The measures it uses are consumer surplus, producer surplus, and government budget expenditure. The procedure, however, does not make special adjustments for multiproduct liberalization or for intermediate/final good and joint product liberalization as discussed in this report. The second procedure allows the researcher to make these adjustments. A description of the use of the second procedure is the focus of this section.

28 Before running the batch program, which creates a country/region welfare spreadsheet, it is necessary to create two print files to help subsequent programs to evaluate special features associated with intermediate/final good and joint product specifications. The coding for both files is based on the two columns following the rest of world (ROW) country column in the SWOPSIM master file.

Figure 17 shows the relevant portions of the master file for a demonstration model. There are nine commodities and three regions in this model. The fifth column contains information for intermediate/final good relationships. An "IU" indicates that the corresponding commodity uses another commodity in the model as an input. An "I" indicates that the corresponding commodity is one of these inputs. The exact input-output relationship is contained in the supply elasticity block in individual country spreadsheets. A problem arises because in general the elasticities in this block represent substitution possibilities between commodities. The information contained in the column allows SWOPSIM programs to distinguish intermediate/final good relationships from the presumed substitute relationships. With this column information, final good supply becomes a function of the consumer price of the intermediate good instead of the producer price.

To make this information relevant for the welfare analysis, the researcher needs to create a print file entitled "IUI." It should contain a matrix with row length equal to the number of commodities and a column length equal to one. The number "2" should be placed in the row corresponding to the input using commodity. The number "1" should be placed in the row corresponding to the input. Zeros should appear in the remaining rows. This print file should be placed on the D: drive before creating country/region spreadsheets.

The sixth column contains information for the specification of joint products. The code word "IN" indicates that the corresponding commodity is a base product. The code word "OU" indicates that the corresponding commodity is a derived final product. This column allows the base product demand to be a function of the derived product's producer price. If the researcher captures all joint product relationships through price elasticities, this column allows derived product supply to be a function of the consumer price of the base product.

Figure 17--SWOPSIM master demo file

1 DEMO SWOPSIM 2 3 US EC RW 5 BF D D IU 6 DM D D IU IN NT 7 DB 1 1 1 OU 8 DC 1 1 1 OU 9 DP 1 1 1 OU 10 CN 1 1 1 11 CG 1 1 1 I 12 SB S IN 13 SM 1 1 OU 14 The researcher needs to create a print file entitled "INOU." This file should be a matrix with column width one, and with row length equal to the number of commodities. The number "2" should be placed in the row corresponding to a derived product. The number "1" should be placed in the row corresponding to a base product. Zeros should appear in the remaining rows. This print file should be placed on the D: drive before creating country/region spreadsheets.

Country/Region Welfare Spreadsheet

A separate welfare spreadsheet for each of the countries or regions of interest needs to be created. The batch program that creates this spreadsheet is called SURPLUS. This program, along with the original country spreadsheet created by the EQUATION batch program, should be placed on the D: drive of the AT. Super Calc 4 should be on the default drive. The user should type the following: D:SURPLUS. The program asks questions regarding the name of the country/region spreadsheet, the number of commodities, the number of intermediate goods, and the number of joint products. The number of joint products should agree with the number of commodities in the master file, which have an S in the particular country column. The S lets the quantity demanded of the base product appear in the supply equation of the derived product. If a joint product relationship is alternatively expressed in price elasticity form, it should not be counted when answering the prompt. In addition, the program asks if minimum prices are to be read into the welfare spreadsheet. Unless the user has specified these prices in column AR in the original country spreadsheet next to the MKADJ column, the user should answer N. Entering or changing minimum prices in the country welfare spreadsheet is possible once it has been created. The program automatically saves the country welfare spreadsheet on the D: drive.

After the welfare sheet has been created, it cannot be used until liberalized prices and policy parameter changes are entered from the world SWOPSIM spreadsheet. The program, MEASURE, inputs the necessary data from the world spreadsheet. Both the world spreadsheet and MEASURE program should be on the D: drive, along with the country welfare spreadsheet. After the user types D:MEASURE, the program asks the name of the original country spreadsheet, the number of commodities, and the line number in the world spreadsheet where the name of the country spreadsheet first appears in the A column.

Figure 18 shows a country welfare spreadsheet after MEASURE has been used to input data. Column A lists the name of the original country spreadsheet and commodities. Columns B and C list initial producer and consumer prices, respectively. Columns D and E list initial production and consumption levels, respectively. Columns F and G list liberalized producer and consumer' prices, respectively. Columns H-M list policy parameter changes. The column headings list the types of changes. The headings are the same as those in the world spreadsheet. In figure 18, PSE's for wheat and corn are reduced by $20 and $17, respectively. Columns N-S list model parameters important for calculating welfare changes. The parameters include equation intercept terms and own-price elasticities for both supply and demand. Column T shows producer surplus calculated using equation 6. Column U shows government expenditure savings when the PSE's are reduced. It is equal to the unit PSE reduction times the initial quantity supplied of output adjusted for endogeneously determined supply curve shifts or researcher specified supply curve shifts. Column V shows consumer surplus calculated using either equation 4 or 5, depending on whether the own-price elasticity differs from one. Column W shows government expenditure savings when CSE's are reduced.

30 Figure 18-- Country/Region Welfare Spreadsheet

A !! B !! !! F !! 1 2 3 DEMO-C2 PRPRICE CNPRICE SUPPLY DEMAND LPRPRICE LCNPRICE 4 MK 260 260 58000 58000 258.0586 258.0586 5 BC 2700 2700 2300 2500 2699.536 2699.536 6 FM 300 300 30000 30000 299.2815 299.2815 7 BF 2500 2500 10000 11000 2492.722 2492.722 8 WH 220 200 66000 27000 204.6866 204.6866 9 CN 187 170 250000 170000 173.0217 173.0217 10 SB 290 290 55000 25000 288.1096 288.1096 11 SM 250 250 19500 15500 251.9387 251.9387 12 SO 500 500 4000 2000 492.7632 492.7632

! H !! I !! . J !! K !! L !! M ! 1 2 3 SSHIFT DSHIFT PRSUBEQ CNSUBEQ IMSUBEQ EXSUBEQ 4 .00 .00 5 .00 .00 6 .00 .00 7 .00 .00 8 ,00 .00 20 9 .00 .00 17 10 .00 .00 11 .00 .00 12 .00 .00 ! N !! 0 !! !! 1 2 3 SCROSS DCROSS SCONST DCONST PRELAST CNELAST 4 .1609978 290.1163 22341.97 249.7208 .5 .04 5 18535.48 1 .0115962 129903.8 .3 -.5 6 58000 1 .5172414 166057.2 O -.3 7 .5976451 1 153.0357 1202698. .6 -.6 8 .3361832 52.77553 13235.99 1923.927 .5 -.25 9 .1876196 6720.910 164408.9 551.1758 .4 -.6 10 .4525793 51.12826 9475.211 34361.93 .45 -.75 11 25000 417297.4 .78 9.285944 O -1 12 25000 1 .16 44721.36 O -.5 ! T !! U !! V !! W !! X !! Y ! 1 2 3 PR SURF PR SAV CN SURF CN SAV Welfare 4 . -112392. 0 112619.7 O 227.7 5 -1066.81 0 1159.657 O 92.8 6 -21553.8 0 21561.53 O 7.7 7 -78547.7 0 80132.54 O 1584.8 8 -992889. 1320000 -126171. O 200940.0 9 -3249581 4280774. -511561. O 519632.0 10 19664.24 0 47374.83 O 67039.1 11 37805.19 0 -30376.1 O 7429.1 12 -28947.2 0 14526.34 O -14420.9

31 It is equal to the unit CSE reduction times the initial quantity demanded adjusted for either endogenously determined demand curve shifts or researcher specified demand curve shifts. Column X shows the net welfare change. It is the row sum of columns T-W.

Although not shown in figure 18, columns Z and AA show the path in which the commodity producer and consumer prices change, respectively. The default path follows the order in which the commodities have been entered into the spread- sheet. Column B below the producer prices lists the minimum producer prices. The default prices are either the prices from the original country/region, if specified, or zero. These prices can be changed in the welfare spreadsheet.

The country/region welfare spreadsheet can account for producer surplus changes when supply controls that set aside the least productive land are put into place. One objective of this type of policy is to achieve a particular producer target price without incurring government budget expenditure. SWOPSIM solves the problem by shifting back the supply curve of the targeted commodity until the price objective is met. As, explained in the preceding section of this report, the measure of the change in welfare will be understated if the calculation of producer surplus is not revised.

Although SWOPSIM solves the problem by shifting supply at every price/quantity combination, conceptually the original supply curve adjusted marginally for cross-commodity effects becomes kinked at the quantity level that achieves the price target. At that point, the supply curve is perfectly inelastic as in figure 16.

Beneath the values of producer surplus reported in column T of the spreadsheet are a second set of numbers. These numbers account for changes in producer surplus for those sectors where supply controls are in effect. Figure 19

Figure 19--Producer surplus in country/region welfare spreadsheet

! T 1 2 3 PR SURP 4 264679.9 5 42202.18 6 44546.44 7 425969.0 8 564163.8 9 1477659. 10 869160.9 11 541132.4 12 -35593.4 13 14 15 264679.9 16 42202.18 17 44546.44 18 425612.2 19 1602356. 20 3943893. 21 869160.9 22 541132.4 23 -35593.4

32 shows column T of a welfare spreadsheet after wheat and corn supplies have been reduced by 20 percent. Rows 8 and 9 show the change in producer surplus if it were assumed that the curves actually shifted leftward by 20 percent. Rows 19 and 20 show the change in producer surplus if the supply curve is kinked. The values in rows 19 and 20 exceed those in 8 and 9 as expected. If the researcher is experimenting with levels of the set-asides, the contents of cell T19 and T20 should be copied into cells T8 and T9. The correct values of changes in producer surplus will then appear in the main body of the spreadsheet.

Other cells in the welfare spreadsheet need not concern the SWOPSIM user. The information in columns Q and S below the cells described above serve as input . into the calculation of prodUcer surplus when there are supply controls. All columns to the right of column AA are used to pick up cross-price effects on the supply and demand equations. This part of the spreadsheet is necessary because a price change path must be specified to avoid the problems of double-counting welfare changes. The documentation of the computer program "WORKFARE" in the appendix contains additional information regarding this portion of the spreadsheet.

World Welfare Spreadsheet

Welfare measures can be aggregated across the set or subset of countries that make up the world model. The individual country/region welfare spreadsheets need to be on the D: drive. To create the world welfare spreadsheet, type D:WELFSUM. The program asks for the number of commodities, the name of the world SWOPSIM spreadsheet, the number of countries, and then the two-letter country codes. The program inputs columns T-W from each of the country/region welfare spreadsheets. For each country, the welfare measures are summed across the welfare components to produce deadweight gain and across commodities to produce national welfare aggregates. Figure 20 shows that portion of the world welfare spreadsheet corresponding to country C2 in the example. Immediately above the cell entitled "DEADWEIGHT GAIN" is a value for the exchange rate in terms of local currency per dollar. The SWOPSIM user must enter the value for the exchange rate must be entered by the SWOPSIM user if it differs from the value of 1.

The program sums each of the cells across countries and produces the sum of components in dollars at the end of the spreadsheet. The example has two other countries besides C2. In figure 20, the world totals make up columns W-AA. This part of the spreadsheet shows the effect on world welfare of an arbitrary set of policy changes.

Comparsion With SWOPSIM Default Welfare Measures

Default welfare measures in the SWOPSIM spreadsheet solve the world model. These measures are similar to those used in this report. They include consumer surplus, producer surplus, and government budget expenditure. These default measures use integration formulas like the ones presented in this report, but they do not allow experimentation with the order of integration and other issues of this type. Researchers may want to use the default measures as they are developing the final solution to a world model. The full documentation of these measures will appear in a separate ERS staff report authored by Vernon Roningen.

33 The most important difference between the measures is that the default measures do not use a price path change order. The order of integration for evaluating welfare changes cannot be dealt with when using the default measures. If substitution effects are sufficiently strong, the welfare measurements can differ significantly.

The two systems of measurement will give the same answer in only two situations. The first is the single-commodity case. The second relates to welfare changes for the commodity chosen to be last in the order of integration. Welfare for this commodity will be calculated assuming that all other prices in the system have reached their new equilibrium values.

The default measure, may be satisfactory when examining a single market in a multicommodity liberalization framework. Interpretation of welfare effects summing across two or more markets becomes somewhat more tenuous. Welfare effects may be double-counted in arriving at a total welfare change for a country.

Figure 20--World welfare spreadsheet

!A !! B !! C !! D !! E !! F ! 1 DEMO-WD WELFARE 2 WELF-C2 XRATE(LC/USP: 1 3 PR SURP PR SAV CN SURP CN-SAV DEADWT GAIN 4 MK -112392. 0 112619.7 0 227.7 5 BC -1066.81 0 1159.657 0 92.8 6 FM -21553.8 0 21561.53 0 7.7 7 BF -78547.7 0 80132.54 0 1584.8 8 WH -992889. 1320000 -126171. 0 200940.0 9 CN -3249581 4280774. -511561. 0 519632.0 10 SB 19664.24 0 47374.83 0 67039.1 11 SM 37805.19 0 -30376.1 0 7429.1 12 SO -28947.2 0 14526.34 0 -14420.9 13 14 TOTAL -4427508 5600774 -390733 0 782532.3

!! X !! Y !! Z !! AA ! 1 2 WORLD TOTALS IN DOLLARS 3 PR SURP PR SAV CN SURP CN-SAV DEADWT GAIN 4 -84541. 0 84783 0 242 5 -2922 0 2923 0 1 6 -14462 0 14471 0 9 7 -157139 0 159002 0 1863 8 -545065. 1320000 -751551 0 23384 9 -2562835 4280774. -1504584 0 213355 10 7338 0 113678 0 121016 11 90151 0 -91128 0 -977 12 -65131 0 65368 0 237 13 14 -3334605 5600774. -1907038 0 359131

34 CONCLUSIONS

This report has reviewed various welfare measures and has described how two specific measures (namely, producer and consumer surplus) can be identified and used in the SWOPSIM modeling framework.

The approach is particularly useful for measuring and analyzing gains to trade, especially in the context of trade liberalization. Figure 21 summarizes the batch programs necessary to create and modify the welfare spreadsheets.

Figure 21--Procedure for doing special welfare analysis in SWOPSIM

Items Comments

SURPLUS This program prompts the user for the number of commodities, the name of the country/region SWOPSIM spreadsheet, the number of final products that are included in derived demand equations of other commodities, and the number of joint products. Assuming that the country SWOPSIM spreadsheet is on the D: drive, this procedure creates the country welfare spreadsheet.

MEASURE This program prompts the user for the name of the country/region SWOPSIM spreadsheet, the number of commodities, and the line number in the world SWOPSIM spreadsheet where the name of the country first appears in column A. Assuming that the world SWOPSIM spreadsheet is on the D: drive, this procedure inputs new or liberalized prices and policy parameter values into the country welfare spreadsheet. This spreadsheet should be on the D: drive as well.

WELFSUM This program prompts the user for the number of commodities, the name of the world SWOPSIM spreadsheet, the number of countries, and the code designation of each country. Assuming that each of the country• welfare spreadsheets are on the D: drive, this procedure creates a new spreadsheet in which the welfare measures from each country are entered and summed across countries. The world totals are reported in a common currency unit.

35 REFERENCES

1. Bale, M.D., and E. Lutz. "Price Distortions in Agriculture and Their Effects: An International Comparison," American Journal of Agricultural of Agricultural Economics, Vol. 63 (1981), pp. 8-22.

Bhagwati, J., and H.G. Johnson. "Notes on Some Controversies in the Theory of International Trade," Economic Journal, Vol. LXX (Mar. 1960).

3. Dupuit, J. "On the Measurement of the Utility of Public Works," . International Economic Papers, Vol. 8 (1844).

4. Gadson, K.E., J.M. Price, and L.E. Salathe. Food and Agricultural Polic Simulator FAPSIM : Structural E uations and Variable Definitions. ERS Staff Report No. AGES820506. U.S. Dept. Agr., Econ. Res. Serv., May 1982.

5. Harberger, A.C. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, Vol.9, No. 3 (Sept. 1971).

6. Holland, F.D., and J.A. Sharples. WHEATSIM: Model 15 Description and Computer Program Documentation. Station Bulletin No. 319. Purdue University, Mar. 1981.

7. Just, R.E., D.L. Hueth, and A. Schmitz. Applied Welfare Economics and Public Policy. Englewood Cliffs, NJ: Prentice-Hill, Inc., 1981.

8. Marshall, A. Principles of Economics. London: Macmillan Co., 1930.

9. Meyers, W.H., S. Devadoss, and M. Helmar. Baseline Projections, Yield Inpacts and Trade Liberalization Impacts for Soybeans, Wheat, and Feed Grains: A FAPRI Trade Model Analysis. Working Paper No. 86-WP2. The Center for Agricultural and Rural Development, University of Iowa, 1986.

10. Ray, D.E., and J. Richardson. Detailed Description of POLYSIM. Technical Bulletin T-151. Agricultural Experiment Station, Oklahoma State University. Dec. 1978.

11. Roningen, V.O. A Static World Policy Simulation (SWOPSIM) Modeling Framework. Staff Report No. AGES860625. U.S. Dept. Agr., Econ. Res. Serv., July 1986.

12. Tyers, R., and K. Anderson. "Distortions in World Food Markets: A Quantitative Assessment." Background paper for the World Bank's World Development Report. 1986.

13. Valdes, A., and J. Zeitz. The Costs of Protectionism to Developing Countries: Its Cost to Less-developed Countries. Washington, DC: International Food Policy Research Institute, 1980.

14. Willig, R.D. "Consumer Surplus without Apology," American Economic Review, Vol. 66 (1976), pp. 589-97.

36 APPENDIX--SWOPSIM WELFARE COMPUTER PROGRAMS

Table 1 outlines the programs that create and modify the welfare spreadsheets described in this report. Comments within the programs provide documentation for a programmer. The programs assume the input and output information is on the D: drive. This assumption can be changed by using a text editor to change to another drive designation in all programs.

Program Listings

These program listings expect Super Cale 4 to be on the logged drive and assume the basis and batch programs, spreadsheets, etc. are on the D: drive. D: can be globally edited in all programs and procedures to obtain other drive designations.

Table 1--Computer programs

Program Function

Measure. BAT This batch program involves the Readin program

Readin. BAS This program reads new price data and policy paramenter values from the world SWOPSIM model and inputs it into the country welfare spreadsheet.

Sumup. BAS This program takes adjusted producer and consumer surplus and government budget savings from the specified country welfare spreadsheet and inputs it into a separate spreadsheet. Once these data have been entered, the program sums up totals across countries in a common currency unit.

Surplus. BAT This batch program clears old data and invokes welfare1 and workfare programs necessary for the creation of a single country welfare spreadsheet.

Welfarel. BAS This program reads data from the designated country SWOPSIM spreadsheet. These data include all supply and demand elasticities, derived demand parameters, joint product parameters, and producer minimum prices, if specified.

Welfsum. BAT This batch program involves the sumup program

Workfare. BAS This program reads in data placed in print files by welfare1 and creates the designated country welfare spreadsheet.

37 SURPLUS.BAT

ERASE D:DEM.PRN ERASE D:SUP.PRN ERASE D:MIN.PRN BASIC D:WELFARE1 CD SC4 SC4 D:TEST1 CD BASIC D:WORKFARE CD SC4 SC4 D:TEST2 CD

WELFARE1.BAS

10 PRINT:INPUT "HOW MANY COMMODITIES ARE THERE";CM% 20 PRINT:INPUT "WHAT IS THE NAME OF THE COUNTRY/REGION SPREADSHEET";CY$ 30 PRINT:INPUT "HOW MANY COMMODITIES USE OTHER ENDOGENEOUS QUANTITIES AS INTERMEDIATE INPUTS";FP% 40 PRINT:INPUT "HOW MANY JOINT PRODUCTS ARE THERE IN THE MODEL";JP% 44 PRINT:INPUT "DO YOU WISH TO SPECIFY MINIMUM PRICES FOR ANY OF THE COMMODITIES(Y OR N)",MIN$ 50 CL$="ABCDEFGHIJKLMNOPQRSTUVWXY ZAAABACADAEAFAGAHAIAJAKALAMANAOAPAQARASATAUAVAWAXAYAZ" 60 OPEN "0",1,"D:TEST1.XQT" 70 WW[MACRO]":GOSUB 400 80 W$="/L,D:"+CY$+",A":GOSUB 400 'LOADING OF COUNTRY SPREADSHEET 85 W$="/FCA:AZ,W7/":GOSUB 400 'NARROWING OF COLUMN WIDTH FROM 9 TO 7 90 W$="/G,B":GOSUB 400 100 NIUCM%+3 110 N1$=STRVNI%) 120 H1S=MIDVCL$,(CM%*2)+1,2) 121 14=MIDVCL$,(CM%*2)+1+2*JP%,2) 122 S$=MIDVCL$,(CM%*2)+1+2*FP%,2) 130 WW/O,F[EDIT](HOMM:SUP.PRN,REEDITHHOMEJA3:"+D$+Nl$+",0,L,W,255/T,0/QQG,Q ":GOSUB 400 'PRINT FILE FOR SUPPLY AND JOINT PRODUCT PARAMETERS - 140 N210=N110+2 150 N2$=STRVN2%) 160 N3%=N2%.1-CM% 170 N3S=STRS(N3%) 180 WW/O,F[EDIT][HOME]D:DEM.PRN,R[EDIT] (HOME]A"+N2$+":"+S$+N3$+" 0,L,W,255/T,0 /QQG,Q":GOSUB 400 'PRINT FILE FOR DEMAND PARAMETERS 190 IF MIN$="Y" THEN GOTO 205 200 GOTO 300 205 WW/O,F[EDIT][HOME]D:MIN.PRN,R[EDIT] [HOME]AR"+STR$(2*CM%+9)+":AR"+STR$(3*CM U8)+",0,L,W,255/T,O/QQG,Q":G0SUB 400 'PRINT FILE FOR MINIMUM PRICES 300 WW/Q,Y":GOSUB 400 310 CLOSE 1 320 OPEN "0",1,"D:INFO.PRN" 'PRINT FILE FOR INFORMATION TO BE USED IN WORKFARE 330 PRINT #1,CM% 340 PRINT #1,CY$ 350 PRINT #1,FP% 360 PRINT #1,JP% 362 PRINT #1,MIN$ 370 CLOSE 1

38 380 SYSTEM 390 END 400 PRINT I/LUIS:RETURN

WORKFARE. BAS

10 PRINT "THE PROGRAM IS WORKING -- PLEASE BE PATIENT!" 20 OPEN "I",1,"D:INFO.PRN" 'READ IN OF INFO FROM WELFARE1 30 INPUT #1,CM% 40 INPUT #1,CY$ 50 INPUT #1,FP% 60 INPUT #1,JP% 70 INPUT #1,MIN$ 80 CLOSE 1 90 DIM PMIN(CM) 100 IF MIN$="Y" THEN GOTO 120 110 GOTO 180 120 OPEN "I",1,"D:MINMAX.PRN" 'MINIMUM PRICE 130 I=1 140 FOR I=1 TO CM% 150 INPUT #1,PMIN(I)

170 CLOSE 1 180 DIM FU(CM,CM) 190 DIM F(CM) 200 OPEN "I",1,"D:IUI.PRN" 'READ IN OF FEED USE - FEED RELATIONSHIP (FU=2, F=1, 0 OTHERWISE) 210 FOR I=1 TO CM% 220 INPUT #1,F(I) 230 NEXT I 240 CLOSE 1 250 FOR I=1 TO CM% 260 IF F(I)<>2 THEN GOTO 310 270 FOR J=1 TO CM 280 IF F(J)<>1 THEN GOTO 300 290 FU(I,J)=1 'MATRIX WITH INFO RE IUI 300 NEXT J 310 NEXT I 311 DIM OU(CM,CM%) 312 DIM IN(CM) 313 OPEN "I",1,"D:INOU.PRN" 314 FOR I=1 TO CM 315 INPUT #1,IN(I) 316 NEXT I 317 CLOSE 1 318 FOR I=1 TO CM 319 IF IN(I)<>2 THEN GOTO 324 320 FOR J=1 TO CM!. 321 IF IN(J)<>1 THEN GOTO 323 322 OU(I,J)=1 323 NEXT J 324 NEXT I 326 DIM UO(CM,CM) 328 FOR I=1 TO CM!. 329 FOR J=1 TO CM!. 330 UO(I,J)=0U(J,I)

39 331 NEXT J 332 NEXT I 337 LETRWABACADAEAFAGAHAIAJAKALAMANAOAPAQARASATAUAVAWAXAYAZBABBBCBDBEBFBGBHBIBJBKB LBMBNBOBPBQBRBSBTBUBVBWBXBYBZCACBCCCDCECFCGCHCICJCKCLCMCNCOCPCQCRCSCTCUCVCWCXCYC ZDADBDCDDDEDFDGDHDIDJDKDLDMDNDODPDQDRDSDTDUDVDWDXDZEAEBECEDEEEFEGEHEIEJEKELEM" 339 OPEN "0",1,"D:TEST2.XQT" 'HEADINGS 340 X$="[MACRO]":GOSUB 5310 350 X$="/G,N":GOSUB 5310 360 X$="/G,M":GOSUB 5310 370 X$="[GOTO]A3/":GOSUB 5310 380 X$=CY$+"/":GOSUB 5310 390 X$="[GOTO] B3/":GOSUB 5310 400 XWPRPRICE /":GOSUB 5310 410 X$="[GOTO]C3/":GOSUB 5310 420 X$="CNPRICE/H:GOSUB 5310 430 X$="[GOTO]D3/":GOSUB 5310 440 X$="SUPPLY/":GOSUB 5310 450 X$="[GOTO]E3/":GOSUB 5310 460 X$="DEMAND/":GOSUB 5310 470 X$="[GOTO]F3/":GOSUB 5310 480 X$="LPRPRICE/":GOSUB 5310 490 X$="[GOTO]G3/":GOSUB 5310 500 X$="LCNPRICE/":GOSUB 5310 510 X$="[GOTO]H3/":GOSUB 5310 520 X$="SSHIFT/":GOSUB 5310 530 X$="[GOTO]I3/":GOSUB 5310 540 X$="DSHIFT/":GOSUB 5310 550 X$="[GOTO]J3/":GOSUB 5310 560 X$="PRSUBEQ/":GOSUB 5310 570 X$="[GOTO]K3/":GOSUB 5310 580 X$="CNSUBEQ/":GOSUB 5310 590 X$="[GOTO]L3/":GOSUB 5310 600 XWIMSUBEQ/":GOSUB 5310 610 X$="[GOT0]143/":GOSUB 5310 620 XWEXSUBEQ/":GOSUB 5310 630 X$="[GOTO]N3/":GOSUB 5310 640 X$="SCROSS/":GOSUB 5310 650 X$="[GOTO]03/":GOSUB 5310 660 X$="DCROSS/":GOSUB 5310 670 X$="[GOTO]P3/":GOSUB 5310 680 X$="SCONST/":GOSUB 5310 690 X$="[GOTO]Q3/":GOSUB 5310 700 X$="DCONST/":GOSUB 5310 710 X$="[GOTO]R3/":GOSUB 5310 720 X$="PRELAST/":GOSUB 5310 730 X$="[GOTO]S3/":GOSUB 5310 740 X$="CNELAST/":GOSUB 5310 750 X$="[GOT0]T3/":GOSUB 5310 760 X$="PR SURP/":GOSUB 5310 770 X$="[GOTOW3/":GOSUB 5310 780 X$-"PR SAV/":GOSUB 5310 790 X$="[GOTO]V3/":GOSUB 5310 800 X$="CN SURP/H:GOSUB 5310 810 X$="[GOTO]W3/":GOSUB 5310 820 X$="CN SAV/":GOSUB 5310

40 830 X$="[GOTO]X3/":GOSUB 5310840 X$="WELFARE/":GOSUB 5310 850 X$="[GOTO]Z3/":GOSUB 5310 860 X$="I ORDER PR/H:GOSUB 5310 870 X$="[GOTO]AA3/":GOSUB 5310 880 X$="1 ORDER CN/":GOSUB 5310 890 X$="[GOTO]B"+STRVCM%+5)+"/":GOSUB 5310 900 X$="PMIN/":GOSUB 5310 910 DIM DEMEL(CM%) 920 OPEN "I",2,"D:DEM.PRN" 'READ IN OF DEMAND PARAMETERS 930 LINE INPUT #2,W$ 'FIRST LINE = CODES 940 M=1 950 FOR M=1 TO CI4% 960 CM$=MID$(W4,7*M+6,7) 970 M$=STRVM+3) 980 X$="[GOTO]A"+M$+"/":GOSUB 5310 'PRODUCT CODES 990 X$=CM$+"/":GOSUB 5310 1000 NEXT 1010 BEG$=STR$(2*CM%+9) 1020 BOTS=STR$(3*CM%+8) 1030 X$="[GOTO]B4/":GOSUB 5310 'BASE DATA FROM COUNTRY SPREADSHEET 1040 X$="/LD:"+CY$+",PC"÷BEG$+":D"+BOT$+"„V":GOSUB 5310 1050 X$="[GOTO]D4/":GOSUB 5310 1060 X$="/LD:"+CY$+",PG"+BEGW:H"+BOT$+"„V":GOSUB 5310 1070 X$="[GOTO]N4/":GOSUB 5310 1080 X$="/LD:"+CY$+",PY"+BEG$+":AB"+BOT$+"„V":GOSUB 5310 1090 BOT$=STRVCM%+3) 1100 X$="/CB4:C"+BOT$+",F4/":GOSUB 5310 'INITIAL PRICES 1110 X$="/UF4:G"+BOT$+"/":GOSUB 5310 1120 X$="[GOTO]Z4/":GOSUB 5310 'PRICE CHANGE PATH 1130 I=1 1140 FOR I=1 TO CM% 1150 XS=STRVI)+"/":GOSUB 5310 1160 X$="[DN]":GOSUB 5310 1170 NEXT I 1180 X$="/CZ4:Z"+BOT$+",AA4/":G0SUB 5310 1190 X$="[GOTO]AB4/":GOSUB 5310 1200 I=1 1210 FOR I=1 TO CM% 1220 3a="IF(Z4<="+STRVI)+",F4,84)":G0SUB 5310 1230 X$="[RT]":GOSUB 5310 1240 NEXT I 1250 X$="/CAB4:"+MIDVLETR$,(2*CM%)*1-1,2)+"4,AB5:"-i-MID$(LETRS,(2*CM%)*1-1,2)+BO T$+"/":GOSUB 5310 1260 X$="[GOTO]"+MIDVLETR$,(2*CM%)*1+1,2)+"4/":GOSUB 5310 1270 I=1 1280 FOR I=1 TO CM% 'SETTING OF FORMULA FOR CHOICE OF NEW/OLD CN PRICE 1290 XWIF(AA4<="+STRVI)+",G4,C4)":GOSUB 5310 1300 X$="[RT]":GOSUB 5310 1310 NEXT I 1320 X$="/C"+M1D$(LETR$ , (2*CM%)*1+1,2)+"4 : "+MID$ (LETR$ , 2*CM%)*2-1,2 ) +"4 , LETR$,(2*CM%)*1+1,2)+"5:"+MIDVLETR$,(2*CM%)*2-1,2)+BOT$+"/":GOSUB 5310 1330 DIM ORDS(FM) 1340 DIM ORDD(JP%) 1345 REM FROM HERE TO CLOSE 2 BELOW, CROSS PRICE EFFECTS ARE DEALT WITH 1350 M=1 1360 FOR M=1 TO FP%

41 1370 SCM$=MIDVWC7*(M+CM%)+6,7) 'READ IN OF CODE S_ _ 1380 NSCM=LEN(SCM$) 'REMOVAL OF BLANK SPACES 1390 N=1 , 1400 FOR N=1 TO 7 1410 BLKS=MIDVSCMCN,1) 1420 IF BLK$="S" THEN DAME$=RIGHTVSCMCNSCM-N) : GOTO 1440 1430 NEXT 1440 NUMB=LEN(DAME$) 1450 H=1 1460 FOR H=1 TO NUMB 1470 IF MIDVDAMECN(JMB-(H-1),1)=" " THEN DAME2$=LEFTVDAMECNUMB-H):GOTO 1490 1480 GOTO 1500 1490 NEXT H 1500 IF H<>1 THEN DAMES=DAME2$ 1505 REM FINAL GOODS ABOVE GIVEN CELL BASED ON ORDER READ IN 1510 P=1 1520 FOR P=1 TO CM% 1530 POOP=VAL(BOT$)+P 'THIS VARIABLE TAKES FINAL GOOD PRODUCTION EVALUATED AT PRICE CHANGES FOR ENTRY INTO DERIVED DEMAND CROSS TERM 1540 P$=MIDVWC7*P+6,7) 1550 NN=LEN(P$) 1560 FOR I=1 TO 9 1570 IF MIDS(PCI,1)=" " THEN Pl$=RIGHTVPCNN-I):GOTO 1590 1580 GOTO 1600 1590 NEXT I 1600 IF I<>1 THEN P$=P1$ 1610 NUMB=LEN(PS) 1620 H=1 1630 FOR H=1 TO NUMB 1640 IF MIDVPCNUMB-(H-1),1)=" " THEN P2$=LEFTVPCNUMB-H):GOTO 1660 1650 GOTO 1670 1660 NEXT H 1670 IF H<>1 THEN P$=P2$ 1680 IF P$=DAME$ THEN PPW$S$"+STRVPOOP+2):GOTO 1700 'POOP FROM ABOVE ENTERS HERE 1690 NEXT P 1700 ORDS(M)=LEN(PP$) 'NUMBER OF SPACES IN CELL CODE 1710 IF M=1 THEN PPP$=PP$ ELSE PPP$=PPP$+PP$ 1720 NEXT M 1730 DIM VVPR(CM%+3,CM%+3) 1740 DOL$="S" 1750 I=1 1760 FOR I=1 TO CM% 1770 B$=" " 1780 A$=" " 1790 LINE INPUT #2,W$ 'NUMERICAL VALUES FOR DEMAND PARAMETERS 1800 K=1 1810 L=0 1820 FOR K=1 TO CM% 'ELASTICITIES FIRST 1830 VS=MIDVWC7*K+6,7) 1840 V=VAL(V$) 1850 IF K=I THEN DEMEL(K)=V 'OWN PRICE ELASTICITY 1860 KS=STRVK+3) 1870 IF V=0 THEN GOTO 1910 1880 IF K=I THEN GOTO 1910

42 1885 IF UO(I,K)=1 THEN A$="AB"+K$+"/"+V$ ELSE MIDCLETR$,(2*CM*1+1,2)+K$+"/"44$ 1890 L=L+1 1900 IF L=1 THEN B$=A$ ELSE B$=B$+"*"+A$ 1910 NEXT K 1920 IF B$=" " THEN B$="1" 1930 Q=1 1940 RS=0 1950 RSS=0 1960 FOR Q=1 TO FP% 'DERIVED DEMAND TECHNICAL RELATIONSHIPS 1970 Q$=" " 1980 VV$=MIDVW$,(CMUQ)*7+6,7) 1990 IF VV$=" " THEN GOTO 2140 2000 IF VV$=" "THEN GOTO 2140 2010 RS=ORDS(Q) 'DD PARAMETERS ASSOCIATED WITH CELL DESIGNATION FROM ABOVE 2020 QQ=2 2030 IF Q=1 THEN GOTO 2070 'CELLS IN A ROW - THIS PROCEDURE GETS CELL DESIGNATIONS ASSIGNED TO RIGHT COMMODITY 2040 FOR QQ=2 TO Q 2050 IF QQ>2 THEN ORDS1=ORDS1+ORDS(QQ-1) ELSE ORDS1=ORDS(QQ-1) 2060 NEXT QQ 2070 IF Q=1 THEN RRS=RS ELSE RRS=ORDS1+RS 2080 Q$=MIDCPPP$,(RRS-RS)+1,RS) 2090 S=INSTR(2,Q$,DOLP 2100 UP$=MID$(Q$,S+1) 'THIS INFO NOT NEEDED IN THIS VERSION - PRESERVED FOR POSSIBLE FUTURE USE 2110 UP=VAL(UP$)-VAL(BOT$) 2120 VVPR(I,UP)=VAL(VV$) 2130 B$=B$+"*"+Q$+"/"+VV$:GOTO 2140 2140 NEXT Q 2150 CL$=STRCI+3) 2160 X$="[GOTO]"+MIDCLETR$,(2*CM%)*3+1,2)+CL$+"/":GOSUB 5310 2170 X$=B$+"/":GOSUB 5310 2180 NEXT 2190 X$="/C"+MIDVLETR$,(2*CM%)*3+1,2)+"4:"+MIDVLETR$,(2*CM%)*3+1,2)+BOT$+","+M IDCLETR$,(2*CM%)*3+3,2)+"4:1.'+MIDCLETR$,(2*CM%)*4-1,2)+BOT$+"/":GOSUB 5310 2200 CLOSE 2 2295 REM LINES TO CLOSE 2 DO THE SAME FOR SUPPLY AND JOINT PRODUCT PARAMETERS AS ABOVE 2210 DIM SUPEL(CM%) 2220 OPEN "I",2,"D:SUP.PRN" 2230 LINE INPUT #2,W$ 2240 M=1 2250 FOR M=1 TO JP% 'JOINT PRODUCT PARAMETERS 2260 SCM$=MID$(143,7*(M+CM%) +6,7) 2270 NSCM=LEN(SCMP 2280 N=1 2290 FOR N=1 TO 7 2300 BLK$=MIDVSCM$,N,1) 2310 IF BLK$="D" THEN DAME$=RIGHTVSCM$,NSCM-N):GOTO 2330 2320 NEXT N 2330 NUMB=LEN(DAME$) 2340 H=1 2350 FOR H=1 TO NUMB 2360 IF MIDVDAMECNUMB-(H-1),1)=" " THEN DAME2$=LEFTVDAME$,NUMB-H):GOTO 2380

43 2370 GOTO 2390 2380 NEXT H 2390 IF H<>1 THEN DAME$=DAME2$ 2400 P=1 2410 FOR P=1 TO CM% 2420 POOP=VAL(BOT$)+P 'THIS POOP IS SIMILAR TO POOP ABOVE - TAKES FINAL GOOD CONSUMPTION FOR ENTRY INTO JOINT PRODUCT CROSS TERM 2430 14=MID$(4,7*P+6,7) 2440 NN=LEN(P$) 2450 FOR I=1 TO 7 2460 IF MID$(PCI,1)=" " THEN P1S=RIGHTS(PCNN-I):GOTO 2480 2470 GOTO 2490 2480 NEXT I 2490 IF I<>1 THEN P$=P1$ 2500 NUMB=LEN(P$) 2510 H=1 2520 FOR H=1 TO NUMB 2530 IF MIDVPCNUMB-(H-1),1)=" " THEN P2$=LEFTVPCNUMB-H):GOTO 2550 2540 GOTO 2560 2550 NEXT H 2560 IF H<>1 THEN P$=P2$ 2570 IF P$=DAME$ THEN PPW$U$"+STRVPOOP+2):GOTO 2590 'POOP FROM ABOVE 2580 NEXT P 2590 ORDD(M)=LEN(PP$) 2600 IF M=1 THEN PPP$=PP$ ELSE PPP$=PPP$+PP$ 2610 NEXT M 2620 I=1 2630 FOR I=1 TO CM% 'READ IN OF A ROW 2640 B$=" " 2650 A$=" " 2660 LINE INPUT #2,W$ 'READ IN OF SUPPLY ELASTICITIES 2670 K=1 2680 L=0 2690 FOR K=1 TO cm 2700 VS=MIDVWC7*K+6,7) 2710 V=VAL(V$) 2720 IF K=I THEN SUPEL(K)=V 'OWN SUPPLY ELASTICITY 2730 K$=STRVK+3) 2740 IF V=0 THEN GOTO 2800 2750 IF K=I THEN GOTO 2800 2760 IF FU(I,K)=1 OR OU(I,K)=1 THEN AB$=MIDVLETR$,(2*CM%)*1+1,2) ELSE AB$="AB"2770 A$=ABS+K$+"/"+V$ 2780 L=L+1 2790 IF L=1 THEN B$=A$ ELSE B$=B$+"*"+A$ 2800 NEXT K 2810 IF B$=" " THEN B$="1" 'THIS IS FOR CASE WHERE ONLY JOINT PRODUCT PARAMETER CONTRIBUTES TO CROSS TERM 2820 Q=1 2830 RD=0 2840 RRD=0 2850 FOR Q=1 TO JP% 2860 Q$=" " 2870 VV$=MIDVWC(CMUQ)*7+6,7) 2880 IF VV$=" " THEN GOTO 2990 2890 IF VV$=" " THEN GOTO 2990 2900 RD=ORDD(Q)

44 2910 QQ=2 2920 IF Q=1 GOTO 2960 2930 FOR QQ=2 TO Q 2940 IF QQ>2 THEN ORDD1=ORDD1+ORDD(QQ-1) ELSE ORDD1=ORDD(QQ-1) 2950 NEXT QQ 2960 IF Q=1 THEN RRD=RD ELSE RRD=ORDDl+RD 2970 Q$=MIDVPPPC(RRD-RD)+1,RD) 2980 BS=B$+"*"+Q$+"/"+VITS:GOTO 2990 2990 NEXT Q 3000 CLS=STRVI+3) 3010 X$="[GOTO]"+MIDS(LETRS,(2*CM%)*2+1,2)+CL$+"/":GOSUB 5310 3020 X$=B$+"/":GOSUB 5310 3030 NEXT I 3040 CLOSE 2 3050 XS="/C"+MID$(LETR$ , (2*CM%)*2+1,2)+"4 : "+MID$ (LETR$ , (2*CM)*2+1,2)+BOT$+" , "+M IDVLETR$,(2*CM%)*2+3,2)+"4:"+MIDVLETR$,(2*CM%)19-1,2)+BOT$+"/":GOSUB 5310 3060 X$="[GOTO]R4/":GOSUB 5310 3070 K=1 3080 FOR K=1 TO CM% 'WRITE IN OF OWN PRICE SUPPLY ELASTICITIES 3090 X$=STRVSUPEL(K)):GOSUB 5310 3100 X$="[DN]":GOSUB 5310 3110 NEXT K 3120 X$="[GOTO]S4/":GOSUB 5310 3130 K=1 3140 FOR K=1 TO CM% 'WRITE IN OF OWN PRICE DEMAND ELASTICITIES 3150 X$=STRVDEMEL(K)):GOSUB 5310 3160 X$="[DN]/":GOSUB 5310 3170 NEXT K 3180 X$="[GOTO]B"+STRWM%+6)+"/":GOSUB 5310 3190 K=1 3200 FOR K=1 TO CM% 3210 X$=STRVPMIN(K)):GOSUB 5310 'MIN PROD PRICES IF SPECIFIED 3220 X$="[DN]":GOSUB 5310 3230 NEXT K 3235 REM NEXT 70-75 LINES SEE TO IT THAT CROSS TERMS CORRESPOND TO PRICE CHANGE PATH FOR PS AND CS CALCULATIONS 3240 FWIF(24="3250 J$="IF(AA4=" 3260 H$=")" 3270 IF CM%<=12 THEN K1=CM:GOTO 3290 3280 K1=12 3290 FOR K=1 TO K1-1 3300 IF K=1 THEN PAR$=H$ ELSE PAR$=PAR$+H$ 3310 NEXT K 3320 FOR K=1 TO K1 3330 0=F$+STR$00+","+MIDVLETR$,(2*CMUK-1)*2+1,2)+"4," 3340 L$=J$+STRVK)+","+MIDVLETR$,(2*CM%)*3+(K-1)*2+1,2)+"4," 3350 IF K=1 THEN GG$=G$:GOTO 3370 3360 IF K

45 3440 X$="[GOTO]"+MIDVLETR$,(2*CM%)*4+9,2)+"4/":GOSUB 5310 3450 X$=LL$+"/":GOSUB 5310 3460 PAR$=" " 3470 IF CM%<=12 THEN GOTO 3920 3480 IF CM%<=24 THEN K2=CM%:GOTO 3500 3490 K2=CM% 3500 K=13 3510 FOR K=13 TO K2-1 3520 IF K=13 THEN PAR$=H$ ELSE PAR$=PAR$+H$ 3530 NEXT K 3540 K=13 3550 FOR K=13 TO K2 3560 0=F$+STRVK)+","+MIDVLETR$,(2*CMUK-1)*2+1,2)+"4," 3570 LS=J$+STR$(K)+","+MIDSCLETR$,(2*CM%)*3+(K-1)*2+1,2)+"4," 3580 IF K=13 THEN GG$=G$:GOTO 3600 3590 IF K

46 3970 PS$=MIDVLETR$,(2*CM%)*4+7,2) 'COLUMN OF CROSS PRICE TERMS FOR SUPPLY 3980 CS$=MIDVLETR$,(2*CM7)*4+15,2) 'COLUMN OF CROSS PRICE TERMS FOR DEMAND 3990 BOT3$=STRVCM70+6) 3995 REM NEXT 70-75 LINES SIMILAR TO THOSE ABOVE - THIS IS FOR DERIVED DEMAND AND JOINT PRODUCT QNANTITY SHIFTERS IN CROSS TERMS 4000 F$="IF(Z4=" 4010 J$="IF(AA4=" 4020 H$=")" 4030 IF CM%<=12 THEN K1=CM70:GOTO 4050 4040 K1=12 4050 FOR K=1 TO K1-1 4060 IF K=1 THEN PAR$=H$ ELSE PAR$=PAR$+H$ 4070 NEXT K 4080 FOR K=1 TO K1 4090 G$=F$+STRVK)+","+MIDVLETR$,(K-1)*2+1,2)+"4," 4100 L$=.1$+STRVK)+","+MIDVLETR$,(2*CM70+(K-1)*2+1,2)+"4," 4110 IF K=1 THEN GG$=G$:GOTO 4130 4120 IF K

47 4520 NEXT K 4530 K=25 4540 FOR K=25 TO K3 4550 G$=F$+STRVK)+","+MIDVLETR$,(K-1)*2+1,2)+"4," 4560 L$=J$+STRVK)+","+MIDVLETR$,(2*CM704(K-1)*2+1,2)+" ft 4570 IF K=25 THEN GG$=G$:GOTO 4590 4580 IF K0,0R(L4<>0,M4<>0))," 4770 XX2$="J4*D4*(1+H4W+PS$+"4—N4)/N4)+M4*(D4*(1+H4+("+PS$+"4—N4)/N4)—E4*(1+14

4780 XX3$=",E"+BOT3$+")" 4790 X$=XX1$+XX2$+XX3$+"/":GOSUB 5310 4800 X$="[GOTO]V4/":GOSUB 5310 'CONSUMER SURPLUS FOR NON—UNITARY ELASTICITY 4810 X$="—IF(S4<>-1,((1+14)*Q4*"+CS$+"4/(1+S4))*(G4/(1+S4)—C4/(1+S4)),-1*V"+BOT3 $+")/":GOSUB 5310 4820 X$="[GOTON4/":GOSUB 5310 'GOVT CSE AND RENT SAVINGS 4830 XX1WIF(OR(K4<>0,0R(L4<>0,M4<>0))," 4840 XX3W,G"+BOT3$+")" 4850 XX2$="K4*E4*(1+14+("+CS$+"4-04)/04)+L4*(E4*(1+14+("+CS$+"4-04)/04)—D4*(1+H4 +("+PS$+"4—N4)/N4))" 4860 X$=XX1S+XX2S+XX3$+"/":GOSUB 5310 4870 X$="[GOTO]D"+BOT3$+"/":GOSUB 5310 'PSE/CSE SAVINGS WHERE NO DIRECT POLICY CHANGES 4880 XWIF(AND(J4=0,AND(L4=0,M4=0)),P4*(1+H4)*"+PSW4*F4/R4,0)/":GOSUB 5310 4890 X$="[GOTO]E"+BOT3$+"/":GOSUB 5310 4900 XWIF(AND(J4=0,AND(L4=0,M4=0)),—(D"+BOT3W—D4)*(H"+BOT3$+"),0)/":GOSUB 5310 4910 X$="/CD"+BOT3$+":E"+BOT3W,D"+STR$(1+VAL(BOT3$))+":E"+STRVCM70-1+VAL(BOT3$ ))+"/":GOSUB 5310 4920 X$="[GOTO]F"+BOT3$+"/":GOSUB 5310 4930 XWIF(AND(K4=0,AND(L4=0,M4=0)),Q4*(1+14)*"+CSW4*G4/S4,0)/":GOSUB 5310 4940 X$="[GOTO]G"+BOT3$+"/":GOSUB 5310

48 4950 XWIF(AND(K4=0,AND(L4=0,M4=0)),-(F"+BOT3W-E4)*(I"+BOT3$+"),0)/":GOSUB 5310 4960 x$="/CF"+BOT3W:G"+BOT3W,F"+STR$(1+VAL(BOT3$))+":G"+STRWM%-1+VAL(BOT3$ ))+"/":GOSUB 5310 4970 X$="[GOTO]Q"+BOT3$+"/":GOSUB 5310 4980 XWIF((1+H4)/(1/R4)*F4>B"+BOT3$+",(1+H4)/(1/R4)*F4,B"+BOT3$+")/": GOSUB5310 4990 X$="/CQ"+BOT3W,Q"+STR$(1+VAL(BOT3$))+":Q"+STRS(CM%-1+VAL(BOT3$))+"/":GOSU B 5310 5000 X$="[GOTO]S"+BOT3$+"/":GOSUB 5310 'PRODUCTION QUANTITY FOR PRICE SEQUENCE CHANGES 5010 QN$="(1+H4)*P4*"+MIDVLETR$,(2*CM70*4+7,2)+"4*"+PS$+B0T3$+"/R4" 5020 X$=QN$+"/":GOSUB 5310 5030 X$="/CS"+BOT3W,S"+STR$(1+VAL(BOT3$))+":S"+STRVCM70-1+VAL(BOT3P)+"/":GOSU B 5310 5040 X$="[GOTO]T"+BOT3$+"/":GOSUB 5310 'PS CASE OF LAND SET ASIDE OR PRODUCTION QUOTA 5050 II=1 5060 M$=MIDCLETR$,(2*C14%)*4+7,2) 5070 FOR II=1 TO CM% 5080 Y$=STRVII+3) 5090 Z$=STRVII+5+CM%) 5100 PSUPW$S$"+Z$+"*($F$"+Y$+"-$Q$"+Z$+")+($P$"+Y$+"*$"+M$+"$"+Y$+"/(1+$R$"+Y$ +"))*($Q$"+z$+"/(1+$R$"+Y$+")-$B$"+z$+"/(1+$R$"+Y$+"))-($P$"+Y$+"*$N$"+Y$+" /(1+$R$"+Y$+"))*($14"+Y$+"/(1+$R$"+Y$+")-$B$"+z$+"/(1+$R$"+Y$+"))" 5110 X$=PSUP$+"/":GOSUB 5310 5120 X$="[DN]":GOSUB 5310 5140 X$="[GOTO]U"+BOT3$+"/":GOSUB 5310 'CONSUMPTION QUANTITY FOR PRICE SEQUENCE CHANGES 5150 QN$="(1444)*Q4*"+MIDVLETR$,(2*CM%)*4+15,2)+"4*"+CS$+BOT3$+"/S4" 5160 X$=QN$+"/":GOSUB 5310 5170 X$="/CU"+BOT3W,U"+STR$(1+VAL(BOT3P)+":U"+STRVCM%-1+VAL(BOT3$))+"/":GOSU B 5310 5180 X$="[GOTO]V"+BOT3$+"/":GOSUB 5310 'CS FOR UNITARY ELASTICITY 5190 X$="-IF(S4=-1,(1+14)*Q4*"+CS$+"4*(LN(G4)-LN(C4)),0)/":GOSUB 5310 5200 X$="[GOTO]X4/":GOSUB 5310 'SUM OF WELFARE EFFECTS 5210 X$="SUM(T4:W4)/":GOSUB 5310 5220 X$="/CT4:X4,T5:X"+BOT$+"/":GOSUB 5310 5230 X$="/CV"+BOT3W,V"+STR$(1+VAL(BOT3$))+":V"+STRCCM%-1+VAL(BOT3$))+"/":GOSU B 5310 5240 X$="/CA4:A"+BOT$+",A"+BOT3$+"/":GOSUB 5310 5250 X$="[GOTO]Al/":GOSUB 5310 'KEEPS COMMODITY NAME COLUMN FIXED ON SCREEN 5260 X$="/TV/":GOSUB 5310 5270 X$="/SD:WELF-"+MIDVCY$,6)+",A":GOSUB 5310 'SAVES COUNTRY WELFARE SPREADSHEET TO D: DRIVE 5280 CLOSE 1 5290 SYSTEM 5300 END 5310 PRINT #1,X$:RETURN

MEASURE.BAT

BASIC D:READIN CD SC4 SC4 D:TEST3 CD

49 READIN

10 PRINT:INPUT "WHAT IS THE NAME OF THE COUNTRY/REGION SPREADSHEET";CY$ 20 PRINT:INPUT "HOW MANY COMMODITIES ARE THERE";CM% 30 PRINT:INPUT "ON WHAT LINE IN THE WORLD SPREADSHEET DOES THE NAME OF THE COUNTRY/REGION SPREADSHEET FIRST APPEAR";LN% 35 PRINT:INPUT "WHAT IS THE WORLD SPREADSHEET CODE";CD$ 40 OPEN "0",1,"D:TEST3.XQT" 50 NAM1$="WELF"+MIDWYS,5) 60 NAM2$=MIDS(CY$,1,4)+"-"+CD$ 65 X$="[MACRO]":GOSUB 220 70 X$="/LD:"+NAM1$+",A/":GOSUB 220 80 X$="[GOTO]F4/":GOSUB 220 'READS IN NEW PRICES 90 X$="/LD:"+NAM2W,PW"+STRVLN70+3)+":X"+STRVLN%+2+CM70+"„V":GOSUB 220 95 X$="/BJ4:M"+STR$(3+CM%)+",/":GOSUB 220 100 X$="[GOTO]H4/":GOSUB 220 'READS IN POLICY PARAMETERS 110 X$="/LD:"+NAM2W,PL"+STRVLN70+3)+":Q"+STRVLN70+2+CM70+"„V":GOSUB 220 120 X$="/UF4:M"+STR$(3+CM%)+"/":GOSUB 220 'UNPROTECTS 122 BOT3$=STRVCM%+6) 124 X$="[GOTO]C"+BOT3$+"/":GOSUB 220 126 X$="/LD:"+NAM2W,PB"+STRVLN70+3)+":13"+STRVLN14+2+CM70)+"„V":GOSUB 220 130 X$="[GOTO]H"+BOT3$+"/":GOSUB 220 140 X$="/LD:"+NAM2W,PAJ"+STRVLN7.+3)+":AJ"+STRVLN%+2+CM74+"„V":GOSUB 220 150 X$="/LD:"+NAM2W,PAM"+STRVLN%+3)+":AM"+STRVLN70+2+CM70)+"„+":GOSUB 220 160 X$="/LD:"+NAM2W,PAL"+STRVLN70+3)+":AL"+STRVLN70+2+CM70+"„-":GOSUB 220 170 X$="[GOTO]I"+BOT3$+"/":GOSUB 220 180 X$="/LD:"+NAM2W,PAK"+STRVLN70+3)+":AK"+STRVLNY0+2+CM70)+"„V":GOSUB 220 190 X$="/LD:"+NAM2W,PAL"+STRVLN70+3)+":AL"+STRVLN70+2+CM70+"„+":GOSUB 220 195 X$="/LD:"+NAM2$+",PAM"+STRVLN70+3)+":AM"+STRVLN70+2+CM%)+"„-":GOSUB 220 200 SYSTEM 210 END 220 PRINT #1,X$:RETURN

WELFSUM.BAT

BASIC D:SUMUP CD SC4 SC4 D:TEST4 CD

SUMUP.BAS

10 PRINT:INPUT "HOW MANY COMMODITIES ARE THERE";CM% 20 PRINT:INPUT "WHAT IS THE NAME OF THE WORLD SPREADSHEET";WD$ 30 PRINT:INPUT "HOW MANY COUNTRIES ARE IN THE WORLD SPREADSHEET";CN% 40 DIM CNVCN%) 501=1 60 FOR I=1 TO CM% 65 NO$=STRVI) 70 PRINT:INPUT "ENTER THE NAME OF ONE OF THE COUNTRIES";CNVI) 80 NEXT I 90 LETRWABCDEFGHIJKLMNOPQRSTUVWXYZ AAABACADAEAFAGAHAIAJAKALAMANAOAPAQARASATAUAVAWAXAYAZBABBBCBDBEBFBGBHBIBJBKBLBMBN BOBPBQBRBSBTBUBVBWBXBYBZCACBCCCDCECFCGCHCICJCKCLCMCNCOCPCQCRCSCTCUCVCWCXCYCZDADB DCDDDEDFDGDHDIDJDKDLDMDNDODPDQ" 100 NAMS=MIDVWDS,1,4)

50 110 BOT$=STR$(3+CM70 120 OPEN "0",1,"D:TEST4.XQT" 130 X$="[MACRO]":GOSUB 1520 132 X$="/G,N":GOSUB 1520 134 X$="/G,M":GOSUB 1520 136 X$="[GOTO]A1/":GOSUB 1520 140 X$=WD$+"/":GOSUB 1520 'CREATION OF MAIN HEADINGS 145 X$="[RT]":GOSUB 1520 150 X$="WELFARE/":GOSUB 1520 160 X$="[GOTO]A4/":GOSUB 1520 170 X$="/LD:"+WD$+"-"+CN$(1)+",PA4:A"+BOT$+"„V":GOSUB 1520 180 IF CN%<=15 THEN K=CMGOTO 210 190 K=15 200 KK=CN% 210 I=1 ' EACH ITER CORRESPONDS TO A COUNTRY. - HEADINGS/DATA ARE INPUTTED. 220 FOR I=1 TO K 230 X$="[GOTO]"+MIDVLETRC3+(I-1)*14,2)+"2/":GOSUB 1520 240 X$="WELF-"+CNVI)+"/":GOSUB 1520 242 X$="[RT]":GOSUB 1520 244 XWXRATE(LC/USP:/":GOSUB 1520 245 X$="[RT]":GOSUB 1520 246 X$="[RT]":GOSUB 1520 248 X$=STR$(1)+"/":GOSUB 1520 250 X$="[GOTO]"+MIDVLETR$,14(I-1)*14,2)+"4/":GOSUB 1520 260 X$="/CA4:A"+BOT$+",/":GOSUB 1520 270 X$="[UP]":GOSUB 1520 280 X$="[RT]":GOSUB 1520 290 X$="PRSURP/":GOSUB 1520 300 X$="[RT]":GOSUB 1520 310 X$="PR-SAV/":GOSUB 1520 320 X$="[RT]/":GOSUB 1520 330 X$="CNSURP/":GOSUB 1520 340 X$="[RT]/":GOSUB 1520 350 X$="CN-SAV/":GOSUB 1520 360 X$="[RT]/":GOSUB 1520 370 X$="DEADWT GAIN/":GOSUB 1520 380 X$="[GOTO]"+MIDVLETR$,34(I-1)*14,2)+"4/":GOSUB 1520 390 X$="/LD:WELF-"+CNVI)+",PT4:W"+BOT$+"„V":GOSUB 1520 400 X$="[RT]/":GOSUB 1520 410 X$="[RT]/":GOSUB 1520 430 X$="[RT]/":GOSUB 1520 450 X$="[RT]":GOSUB 1520 460 X$="SUM("+MIDVLETR$,34(I-1)*14,2)+"4:"+MIDVLETR$,94(I-1)*14,2)+"4)/":GOSUB 1520 470 X$="/C,"+MIDVLETR$,11+(I-1)*14,2)+"5:"+MIDVLETR$,11+(I-1)*14,2)+BOT$+"/":G OSUB 1520 480 X$="[GOTO]"+MIDVLETR$4+(I-1)*14,2)+STR$(5+CM%)+"/":GOSUB 1520 490 X$="TOTAL/":GOSUB 1520 500 X$="[RT]":GOSUB 1520 510 X$="SUM("+MIDVLETRS,34(I-1)*14,2)+"4:"+MIDVLETRS,3+(I-1)*14,2)+BOTWW:G OSUB 1520 520 X$="/C,"+MIDVLETR$,5+(I-1)*14,2)+STR$(5+CM70+":"+MIDVLETR$,WI-1)*14,2)+S TR$(5+CM70+"/":GOSUB 1520 530 X$="[GOTO]"+MIDVLETRS,11+(I-1)*14,2)+STR$(5+CM70)+"/":GOSUB 1520 540 X$="SUM("+MIDS(LETRS,3+(I-1)*14,2)+STR$(5+CM)+":"+MID$(LETRS,9+(I-1)*14,2)+ GOSUB 1520

51 545 NEXT I 550 IF CN%<=15 THEN GOTO 910 560 I=1 'IF THERE ARE THAN 15 COUNTRIES,REPORT FOR 16TH STARTS IN B COLUMN./ 570 FOR I=1 TO KK-15 580 X$="[GOTO]"+MIDVLETR$,3+(I-1)*14,2)+STRWM%+7)+"/":GOSUB 1520 590 X$="WELF-"+CNVI+15)+"/":GOSUB 1520 592 X$="[RT]":GOSUB 1520 594 X$="XRATE(LC/US$):/":GOSUB 1520 595 X$="[RT]":GOSUB 1520 596 X$="[RT]":GOSUB 1520 598 X$=STR$(1)+"/":GOSUB 1520 600 X$="[GOTO]"+MIDVLETR$,14(I-1)*14,2) .+STRVCM%+9)+"/":GOSUB 1520 610 X$="/CA4:A"+BOT$+",/":GOSUB 1520 620 X$="[UP]":GOSUB 1520 630 X$="[RT]":GOSUB 1520 640 X$="PRSURP/":GOSUB 1520 650 X$="[RT]":GOSUB 1520 660 X$="PR-SAV/":GOSUB 1520 670 X$="[RT]/":GOSUB 1520 680 X$="CNSURP/":GOSUB 1520 690 X$="[RT]/":GOSUB 1520 700 X$="CN-SAV/":GOSUB 1520 710 XW[RT]/":GOSUB 1520 720 X$="DEADWT GAIN/":GOSUB 1520 730 X$="[GOTO]"+MIDVLETR$,34(I-1)*14,2)+STRVCM70+9)+"/":GOSUB 1520 740 X$="/LD:WELF-"+CNVI+15)+",PT4:14"+BOT$+"„V":GOSUB 1520 750 X$="[RT]/":GOSUB 1520 760 X$="[RT]/":GOSUB 1520 780 XWERTP":GOSUB 1520 800 X$="[RT]":GOSUB 1520 810 X$="SUMr+MIDVLETR$,3+(I-1)*14,2)+STRWM70+9)+":"+MIDVLETR$,9+(I-1)*14,2)+ STRVCM7.+9)+")/":GOSUB 1520 820 X$="/C,"+MIDVLETR$,114(I-1)*14,2)+STRVCM70+10)+":"+MIDVLETR$,11+(I-1)*14,2 )+STR$(2*CM70+9)+"/":GOSUB 1520 830 X$="[GOTO]"+MIDVLETRC1+(I-1)*14,2)+STR$(2*CM%+11)+"/":GOSUB 1520 840 X$="TOTAL/":GOSUB 1520 850 X$="[RT]":GOSUB 1520 860 X$="SUMC+MIDVLETR$,3+(I-1)*14,2)+STRVCM%+9)+":"+MIDVLETR$,3+(I-1)*14,2)+ STR$(2*CM70+11)+")/":GOSUB 1520 870 X$="/C,"+MIDVLETR$,54(I-1)*14,2)+STR$(2*CM70+11)+":"+MIDVLETRC9+(I-1)*14,2 )+STR$(2*CM%+11)+"/":GOSUB 1520 880 X$="[GOTO]"+MIDVLETR$,11+(I-1)*14,2)+STR$(2*CM70+11)+"/":GOSUB 1520 890 X$="SUMr+MIDVLETRS,3+(I-1)*14,2)+STR$(2*CM70+11)+":"+MIDVLETRS,9+(I-1)*14, 2)+STR$(2*CM70+11)+")/":GOSUB 1520 900 NEXT I 910 IF CN%>15 THEN GOTO 940 920 X$="[GOTOr+MIDVLETRC3+K*14,2)+"2/":GOSUB 1520 930 GOTO 950 940 X$="[GOTOr+MIDVLETRC3+(KK-15)*14,2)+STRVCM%+7)+"/":GOSUB 1520 950 X$="WORLD TOTALS IN DOLLARS/":GOSUB 1520 952 X$="[LT]":GOSUB 1520 954 X$="[DN]":GOSUB 1520 956 X$="[DN]":GOSUB 1520 960 X$="/CA4:A"+BOT$+",/":GOSUB 1520 962 X$="[RT]":GOSUB 1520 964 X$="[UP]":GOSUB 1520

52 966 X$="PRSURP/":GOSUB 1520 968 X$="[RT]":GOSUB 1520 970 X$="CNSURP/":GOSUB 1520 972 X$="[RT]":GOSUB 1520 974 X$="PR-SAV/":GOSUB 1520 976 X$="[RT]":GOSUB 1520 977 X$="CN-SAV/":GOSUB 1520 978 X$="[RT]":GOSUB 1520 979 X$="DEADWT GAIN/":GOSUB 1520 980 IF CN%>15 THEN GOTO 995 985 X$="[GOTO]"+MIDVLETRC3+K*14,2)+"4/":GOSUB 1520 990 GOTO 1000 995 X$="[G0T0]"+MIDVLETRC3+(KK-15)*14,2)+STRVCM70+9)+"/":G0SUB 1520 1000 I=1 1005 FOR I=1 TO K 1010 IF I=1 THEN TOT$=MIDVLETRC3+(I-1)*14,2)+"4/$"+MIDVLETRC9+(I-1)*14,2)+"$2":GOTO 1020 1015 TOT$=TOT$+"+"+MIDVLETRC3+(I-1)*14,2)+"4/$"+MIDVLETRC9+(I-1)*14,2)+"$2" 1020 NEXT I 1025 IF CN%<=15 GOTO 1050 1030 I=1 1035 FOR I=1 TO KK-15 1040 TOTS=TOT$+"+"+MIDVLETRC34(I-1)*14,2)+STRVCM70+9)+"/$"+MIDVLETRC9+(I-1)*14,2) +"$"+STRVCMY.+7) 1045 NEXT I 1050 X$=TOT$+"/":GOSUB 1520 1060 IF CN%>15 THEN GOTO 1090 1065 X$="/C,"+MIDVLETRC5+K*14,2)+"4:"+MIDVLETR$,11+K*14,2)+"4/":GOSUB 1520 1070 X$="/C"+MIDVLETRC3+K*14,2)+"4:"+MIDVLETRC11+K*14,2)+"4,"+MIDVLETRC3+K *14,2)+"5:"+MIDVLETRC11+K*14,2)+BOT$+"/":GOSUB 1520 1075 X$="[GOTO]"+MIDVLETRC3+K*14,2)+STR$(5+CM70+"/":GOSUB 1520 1080 X$="SUMr+MIDVLETRC3+K*14,2)+"4:"+MIDVLETRC3+K*14,2)+BOTWW:GOSUB 1520 1085 X$="/C,"+MIDVLETRC5+K*14,2)+STRVCM7.+5)+":"+MIDVLETRC11+K*14,2)+STRVCM 70+5)+"/":GOSUB 1520 1089 GOTO 1500 1090 X$="/C,"+MIDVLETRC5+(KK-15)*14,2)+STRVCM79+9)+":"+MIDVLETRS,11+(KK-15)*1 4,2)+STRVCM70+9)+"/":GOSUB 1520 1100 X$="/C"+MIDVLETRC3+(KK-15)*14,2)+STRWM70+9)+":"+MIDVLETR$,11+(KK-15)*14 ,2)+STRVCM70+9)+","+MIDVLETRC3+(KK-15)*14,2)+STRVCM%+10)+":"+MIDVLETRC 11+(KK-15)*14,2)+STR$(2*CM70+9)+"/":GOSUB 1520 1110 X$="[GOTO]"+MIDVLETRC3+(KK-15)*14,2)+STR$(2*CM70+11)+"/":GOSUB 1520 1115 X$="SUMr+MIDVLETRC3+(KK-15)*14,2)+STRVCM70+9)+":"+MIDVLETRC3+(KK-15)*1 4,2)+STR$(2*CM70+9)+")/":GOSUB 1520 1120 X$="/C,"+MIDVLETRC5+(KK-15)*14,2)+STR$(2*CM70+11)+":"+MIDVLETRC11+(KK-15 )*14,2)+STR$(2*CM70+11)+"/".:GOSUB 1520 1500 CLOSE 1 1505 SYSTEM 1510 END 1520 PRINT #1,X$:RETURN 1790 X$="/C,"MIDVLETRC5+KK*14,2)+STRVCM7.+9)+":"+MIDVLETRC11+KK*1 4,2)+STRVCM70+9)+"/":GOSUB 1520

U. S. GOVERNMENT PRINTING OFF ICE:1988- 201-025:60904/ERS 53