Suppose the Government Does Not Provide an Incentive Payment to Producers

question 45

Multiple Choice

Suppose the government does not provide an incentive payment to producers under a production quota policy, and the amount that may be produced and sold by firms is limited by law in order to raise the market price to the support price. Do producers still gain surplus value under this version of the production quota policy?

• A) Yes, they would always achieve a larger producer surplus under this version of the policy.
• B) Yes, as long as the surplus value gained from consumers exceeds the amount of producer surplus lost from production quantities that are no longer produced.
• C) No, they would always face a decrease in producer surplus without the government incentive payment.
• D) No, the change in producer surplus is always negative due to the gains achieved by consumers.

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