Which of the following statements is true?

Question

a) Agricultural price supports increase consumer surplus.


b) Agricultural price supports decrease producer surplus.


c) Agricultural price supports benefit taxpayers by reducing food prices.


d) All of the above are true.


e) None of the above is true.

Answer 1

The answer is E. Agricultural price supports are price floors meant to raise income for farmers by putting minimum prices on crops. A is incorrect because prices reduce consumer surplus. Consumer surplus is the benefit consumers get from paying a market price lower than they are willing to pay, and since price floors keep prices high, this benefit is lost. Conversely, B is incorrect since price floors increase producer surplus, as producers are now able to sell at a higher price than they are willing to sell. C is incorrect since price floors increase food prices, not decrease them. Thus, none of the answers are correct, so E.