In an effort to “support the price of some agricultural goods, the Department of Agriculture?
pays farmers a subsidy in cash for every acre that they leave unplanted. The Agriculture Department argues that the subsidy increases the “cost of competitively produced agricultural goods. Critics argue that because the subsidy us a payment to farmers, it will reduce costs and lead to lower prices. Which argument is correct? Explain.
More Questions From This User See All
Answers & Comments
Verified answer
The cost will increase, because taking acres out of production will decrease supply. Giving farmers money NOT to plant will not increase the number of acres they have available to plant, so it could not "reduce costs and lead to lower prices". The critics are wrong.
The Agriculture Department's argument could be faulty also. It assumes that these payments will lead to more equitable competition, so that the farmer's products will be competitively priced with imports. That in turn implies that imports are priced unfairly to begin with. That may or may not be true. It depends on factors not included in the question.
Paying people to reduce the supply of commodities will result in prices above market levels.