In the market for cotton,suppose the equilibrium price is $10 per ton and the equilibrium quantity is 100 tons.If the government then imposes a price support of $20 per ton,
A) marginal benefit exceeds marginal cost.
B) the market becomes more efficient
C) marginal cost decreases.
D) the government must supply some cotton to offset the shortage that results.
E) marginal cost exceeds marginal benefit.

Question

Quizplus · Accepted Answer

When the government imposes a price support above the equilibrium price, it leads to a surplus of cotton because producers are willing to supply more at the higher price, but consumers are not willing to buy as much. This results in marginal cost exceeding marginal benefit because the cost of producing the additional units of cotton is higher than what consumers value them at, leading to inefficiency in the market.

In the Market for Cotton,suppose the Equilibrium Price Is $10