If an agricultural price support keeps a price above the equilibrium market price,
A)Shortages of agricultural products will result.
B)More resources will be devoted to agriculture than are optimal.
C)There will be redistribution of income from the government to consumers.

Question

Quizplus · Accepted Answer

When a price support keeps the price of agriculture above the equilibrium market price, it creates a surplus of agricultural products. This means that more resources are being devoted to agriculture than what is optimal, which in turn causes inefficient allocation of resources. Shortages of agricultural products will not result from a price support. Income redistribution from the government to consumers is also not a direct result of a price support.

If an Agricultural Price Support Keeps a Price Above the Equilibrium