Asked by Aaron Ehsanipour on Jul 24, 2024
Verified
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.
Production Quota
A limit set by authorities or organizations on the amount of a product that can be produced, often used to control supply and stabilize or increase prices.
Producer Surplus
The gap between the price at which producers agree to sell a good or service and the price they end up receiving.
Government Incentive
A policy or measure implemented by the government to encourage or discourage specific economic activities.
- Evaluate the outcomes of government actions like subsidies, production quotas, and particular taxes on the functioning of markets.
Verified Answer
Learning Objectives
- Evaluate the outcomes of government actions like subsidies, production quotas, and particular taxes on the functioning of markets.
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