Of the Following Groups, Which Benefits Most from a Government

question 305

Multiple Choice

Of the following groups, which benefits most from a government price support program that establishes a floor price for an agricultural product that is higher than the product's market clearing price?

• A) Consumers, who purchase more units of the product than they did before the price support program was implemented
• B) Taxpayers, who no longer must provide funds to purchase surplus units of the product once the price support program is in place
• C) Producers, who earn a higher price on the sale of each unit and also sell more units, thereby unambiguously earning higher revenues
• D) The government, which receives subsidy payments from producers that are required to sell more of the product at a higher price under the government's program

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Definitions:

Sensitivity Analysis

A procedure for examining the repercussions that different magnitudes of an independent variable have on a dependent variable, within the context of predetermined assumptions.

Cash Break-Even

The amount of revenue necessary to cover all cash operating expenses, ignoring non-cash costs.

Fixed Costs

Expenses that do not change with changes in the volume of production or sales, such as rent, salaries, and insurance.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the percentage of fixed costs in a company's cost structure.