Suppose the government decides to create a price support (floor)on the price of corn. It is likely that the total surplus (consumer surplus plus producer surplus)will rise with a price support program.

Question

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A price support will incentivize producers to increase their supply of corn, which will lead to a surplus of corn in the market. This surplus will cause the price of corn to increase artificially, meaning that some consumers may be priced out of the market and reduce their consumption. This, in turn, will lead to a decline in consumer surplus. Additionally, while producers may benefit from the higher prices, they may incur costs associated with storing or disposing of any unsold surplus. Ultimately, the net effect of a price support program may be a decrease in total surplus. When the government creates a price support on the price of corn, it sets a minimum price that is above the equilibrium price. This causes a surplus of corn, which leads to a decrease in consumer surplus and an increase in producer surplus. However, the overall total surplus is unlikely to rise as the deadweight loss from the surplus reduces overall welfare.

Suppose the Government Decides to Create a Price Support (Floor)on