Suppose that the Jamaican government sets coffee prices at $1 per kilogram when the market price is $10 per kilogram.The government's actions will:
A) improve efficiency since the low prices will force producers to find cheaper production methods.
B) result in coffee surpluses,even in a coffee-rich country.
C) cause coffee shortages,even in a coffee-rich country.
D) improve equality between rich and poor since the poor can now afford coffee.

Question

Quizplus · Accepted Answer

When the government sets prices lower than the market price, producers may find that it is not profitable to produce coffee and may reduce production. This can result in coffee shortages, even in a coffee-rich country like Jamaica. Additionally, the lower prices may not necessarily lead to producers finding cheaper production methods, so choice A is not a guaranteed outcome. The government's price-setting action does not directly address equality between rich and poor, so choice D is also not a suitable answer.

Suppose That the Jamaican Government Sets Coffee Prices at $1