If an agricultural price support keeps a price above the equilibrium market price,
A)Shortages of agricultural products will result.
B)More resources will be devoted to agriculture than are optimal.
C)There will be redistribution of income from the government to consumers.
D)There will be positive market feedback leading to even higher prices.

Question

Quizplus · Accepted Answer

When a price support keeps a price above the equilibrium market price, it creates an artificial surplus of agricultural products as producers are incentivized to supply more than what the market demands. This results in more resources being devoted to agriculture than what is optimal, as resources that could have been used in other sectors are now being directed towards agriculture. This inefficiency can lead to wastage and higher production costs.

If an Agricultural Price Support Keeps a Price Above the Equilibrium