Explain what happens in the marketplace when the federal government, in response

Question

Explain what happens in the marketplace when the federal government, in response to lobbying by (small) farmers, places a floor price under a bushel of corn that is greater than the market equilibrium price; for example, raising the market price of corn from $2.00 per bushel to $2.50 per bushel in order to help farmers.

Will this create a surplus or a shortage of corn, ceteris paribus? Will this lead to additional taxpayer expenses, such as storage silo costs? Could this lead further to even more expenses to remove and replace the corn with the most current yields, and send the prior corn to countries in support of foreign aid? Which do you think is best for society, given your review: to impose the floor prices on corn, or to let the market determine the prices? Include in your answer the potential impacts on farmers.  

Explanation / Answer

Increasing the floor price which is greater than the equilbrium price shall lead to the excess supply of the corn in the market since consumer would demand less at the higher price. it will cause excessive expenses on storages of corns. Definitely it will lead to more expenses when such surplus corns are removed to developing countries in the form of aid.

Further, it is also desirable to maintain the certain level of price to incentivise the farmers for undertaking the agricultural activities. in the absence of lucrative profits, farmers would swtich to other professions or outlets, and it may spell doom to any country from long term point of view. Thus, it is desirable to keep the floor price above the equilibrium ones.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.