Unit Four: Assignment 1: Problem 6 from page 692
In 1992 the US Bureau of Land Management set a fee for ranchers who graze their animals on public land equal to $1.86 per animal unit per month-the amount of forage needed to feed one cow and its calf, or five sheep, for a month. The market rate for grazing on private land is $9 per animal per month.
a. Why do you think there is a difference?
b. What are the advantages of setting the lower fee?
c. Would you expect excess demand for government grazing land? Why? Demonstrate graphically.
- Some ranchers benefit from below market grazing fees and presumably lobby heavily to keep these fees at below market rates. Also, these fees were set many years ago and may not have been sufficiently adjusted to match changing economic conditions.
- Ranchers will want to use the land at below market prices. This means that the U.S. Government can establish rules and regulations as to how the land will be cared for. Ranchers will accept those rules in order to continue using the land at low rates. This increases the chance that the land will be well taken care of. The effect is that ranchers who graze their animals on public land may be paying more than the government determined fee.
- If government grazing fees are below market equilibrium, then yes, we would expect excess demand for government provided grazing land.
