Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They increase demand for agricultural products regardless of price elasticity.
B
They create surpluses when demand is inelastic and lead to waste of resources.
C
They decrease the overall market price of agricultural goods and boost consumer spending.
D
They have no significant impact on market dynamics or consumer behavior.
Understanding the Answer
Let's break down why this is correct
Answer
Agricultural price supports are government programs that set a minimum price for certain crops to help farmers earn a stable income. When the price is set above the market equilibrium, it creates a price floor, meaning farmers cannot sell their products for less than this price. If the demand for these crops is inelastic, consumers will not significantly reduce their purchases even if prices rise, which can lead to surplus production. For example, if the government sets a price floor for wheat, farmers may produce more wheat than consumers want to buy at that higher price, resulting in wasted resources and unsold crops. This situation can lead to market failure because it disrupts the natural balance of supply and demand, causing inefficiencies in the agricultural sector.
Detailed Explanation
When price supports are set high, farmers produce more than people want to buy. Other options are incorrect because Some might think that price supports always make people want to buy more food; It's a common belief that price supports lower prices for consumers.
Key Concepts
agricultural price supports
elasticity of demand
market failure
Topic
Price Floors and Market Impact
Difficulty
hard level question
Cognitive Level
understand
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