In a crop market with a price support above the equilibrium price,the total amount of the subsidy paid to farmers is equal to the
A) quantity of the surplus crop multiplied by the support price.
B) quantity of the crop produced multiplied by the support price.
C) quantity of the crop purchased by domestic users multiplied by the support price.
D) quantity of the surplus crop multiplied by the equilibrium price.
E) quantity of the crop purchased by domestic users multiplied by the equilibrium price.

Question

Quizplus · Accepted Answer

The total amount of the subsidy paid to farmers in a crop market with a price support above the equilibrium price is equal to the quantity of the surplus crop (the amount by which production exceeds the quantity demanded at the support price) multiplied by the support price. This is because the subsidy effectively covers the difference between the support price and the market price for the surplus quantity.

In a Crop Market with a Price Support Above the Equilibrium