A government-subsidized price for a commodity that is higher than the market-driven price results in oversupply relative to the efficient allocation.

Question

Quizplus · Accepted Answer

When the government subsidizes a commodity and sets a price higher than the market-driven price, it encourages producers to increase production. However, since consumers are not willing to pay the artificially high price, there will be a surplus of the commodity, leading to oversupply relative to the efficient allocation. This is because the price is not reflecting the true demand for the commodity.

A Government-Subsidized Price for a Commodity That Is Higher Than