Question 1

What has been the market outcome of government-enforced price floors for agricultural products?

Accepted Answer

Price floors set above the equilibrium price lead to a surplus of agricultural products because the quantity supplied exceeds the quantity demanded at that price.

Question 2

Which of the following will likely occur when price floors in agriculture are implemented?

Accepted Answer

Price floors set above the equilibrium price cause a surplus in the market because the quantity supplied exceeds the quantity demanded at that price. This is because producers are willing to supply more at the higher price, but consumers are not willing to buy as much.

Question 3

Garbanzo Beans
 
-Consider the above table. Assuming the government imposes a price floor on garbanzo beans of $8, what would be the likely result?

Accepted Answer

A price floor set above the equilibrium price leads to a surplus because the quantity supplied exceeds the quantity demanded at that price.

Question 4

If the federal government sets a minimum price for wheat at $5.00 per bushel when the equilibrium price is $4.50, then

Accepted Answer

If the government sets a minimum price above the equilibrium price, it creates a surplus because producers will be incentivized to produce more at the higher price. However, consumers will be less incentivized to buy at the higher price, causing excess supply. Since the government is setting a floor at $5.00 per bushel, this creates a permanent surplus because producers will continue to supply more wheat at the higher price, while consumers will not buy as much at the higher price. Therefore, the excess supply will continue to build up and create a surplus.

Question 5

Of the following groups, which benefits most from a government price support program that establishes a floor price for an agricultural product that is higher than the product's market clearing price?

Accepted Answer

Producers benefit the most from a government price support program because they earn a higher price on the sale of each unit and also sell more units, which leads to higher revenues. The floor price ensures that producers do not suffer losses in a situation where there is excess supply of the product but not enough demand, and the market-clearing price falls too low. Consumers may not benefit as they may have to pay higher prices for the product under the price support program, and taxpayers may still have to subsidize the surplus product. The government may earn some subsidy payments, but the primary intent of the program is to benefit the producers.

Question 6

What is the result of an agricultural support price established above the equilibrium price?

Accepted Answer

When an agricultural support price is established above the equilibrium price, it leads to an increase in quantity supplied by producers but a decrease in quantity demanded by consumers. This results in a surplus of the product which cannot be sold at the support price, leading to excess quantity supplied. Therefore, the correct choice is B.

Question 7

When the government sets a price floor which is below the equilibrium price

Accepted Answer

When the government sets a price floor below the equilibrium price, it does not affect the market because the market price is already above the floor. Therefore, the equilibrium price is maintained.

Question 8

In the United States, government-imposed price supports are most often associated with

Accepted Answer

Government-imposed price supports are most commonly associated with agricultural products, such as grains, dairy, and meat. These price supports are designed to protect farmers from fluctuations in market prices and provide stability to the agricultural industry.

Question 9

Garbanzo Beans
 
-Consider the above table. Assuming the government imposes a price ceiling on garbanzo beans of $4, what would be the likely result?

Accepted Answer

At a price ceiling of $4, the quantity demanded of garbanzo beans is 6,000 while the quantity supplied is 4,000. This creates a shortage of 2,000 garbanzo beans.

Question 10

-Refer to the above figure. A price support set at P₃ will

Accepted Answer

A price support set above the equilibrium price will result in a surplus, as the quantity supplied (Q₃) exceeds the quantity demanded (Q₁).

Question 11

When the government establishes a minimum price for an agricultural product above the equilibrium price, the government is creating a(n)

Accepted Answer

When the government establishes a minimum price for an agricultural product above the equilibrium price, it is creating a price floor. This is done to ensure that farmers receive a minimum price for their agricultural products, but it can sometimes lead to surpluses if the price floor is set too high.

Question 12

Federally provided agricultural subsidies in the United States have ________ with the passage of the 2002 Farm Security Act and the 2007 Food, Security, and Bioenergy Act.

Accepted Answer

The question indicates that the subsidies have changed with the passage of the 2002 Farm Security Act and the 2007 Food, Security, and Bioenergy Act, but it does not indicate that they have been abolished, increased to the level of EU price supports, or made a function of tax revenues. Therefore, the best choice is B: the subsidies have been maintained.

Question 13

Which of the following is most likely to benefit from government established price floors in agriculture?

Accepted Answer

Large farm owners and corporate farms are most likely to benefit from government-established price floors in agriculture because they have the scale and resources to produce large quantities that can still be sold at or above the floor price, ensuring their revenue is supported or increased by these policies.

Question 14

Government intervention in agriculture usually involves

Accepted Answer

Government intervention in agriculture usually involves price supports in order to keep farm incomes high. This is often done through programs that set minimum prices for certain crops or through subsidies to farmers. This is done in order to ensure that farmers can make a living and continue to produce food, as agriculture is seen as a vital industry for the economy and for national security. This can also help keep food prices stable for consumers. Price ceilings and subsidies for exports or blocking imports are less common methods of intervention in agriculture.

Question 15

Who ultimately benefits from price supports in agriculture?

Accepted Answer

Price supports in agriculture are set by the government to help stabilize prices for certain commodities (such as corn or wheat) by providing financial assistance to farmers if the market price drops below a certain level. This can benefit farmers by ensuring a minimum price for their products and protecting them from market fluctuations. However, it may also result in higher food prices for consumers, which can be a disadvantage. Therefore, the primary beneficiary of price supports in agriculture is the farmers.

Question 16

One result of the agriculture price supports cited in the text is that

Accepted Answer

Agriculture price supports can create a surplus of food, which may result in excess supply and lower prices for farmers. In some cases, this surplus food is given away through government programs and food banks. Therefore, choice A is the best answer as it directly relates to the price supports causing excess food. Option B is incorrect because price supports are intended to prevent food shortages. Option C is incorrect because large-scale farms often benefit more from price supports than small farms.

Question 17

Agriculture price supports that establish a price floor at which agricultural products may be purchased that exceeds the market clearing price

Accepted Answer

Price floors set above the market clearing price cause a surplus because the quantity supplied exceeds the quantity demanded at that price. This does not create a shortage, benefit taxpayers, or necessarily benefit consumers, as they face higher prices.

Question 18

If the government created a surplus of an agricultural product due to price supports, how might they dispose of this surplus?

Accepted Answer

The disposal method for agricultural surplus depends on various factors such as the type and quantity of the product, market demand, government policies, and budget constraints. Depending on the situation, any of the mentioned methods can be a successful tool in disposing of agricultural surpluses. Giving it away to a foreign country can help build diplomatic relations and increase exports. Purchasing and storing it away can stabilize prices and provide a buffer stock for future demand. For some products, having the farmer destroy the crop can prevent oversupply and maintain market prices. Therefore, the best choice would be to have multiple options available and apply the most suitable method as per the situation.

Question 19

Garbanzo Beans
 
-Consider the above table. If the government imposes a price ceiling on garbanzo beans of $8, what would be the likely result?

Accepted Answer

The answer of Garbanzo Beans
 
-Consider the above table. If...

Question 20

-Refer to the above figure for the corn market. The government wants to set an effective price support in the corn market. To be effective the price should be set

Accepted Answer

An effective price support must be set above the equilibrium price (P₁) to ensure that the market price does not fall below the support level. P₃ is above P₁, making it an effective price support.

Quiz 4: Extensions of Demand and Supply Analysis