When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, the impact on total welfare is the:
A) change in consumer surplus.
B) change in consumer surplus + the change in producer surplus + the cost to government.
C) change in consumer surplus + the change in producer surplus - the cost to government.
D) change in consumer surplus + the change in producer surplus.

Question

Quizplus · Accepted Answer

The impact on total welfare would be the change in consumer surplus (since consumers would still receive the benefit of the support price) plus the change in producer surplus (since producers are now guaranteed a certain price for their goods) minus the cost to the government (which would have to purchase any unsold inventory). Therefore, option C is the correct answer.

When the Federal Government Installs a Price Support Program That