If a price floor at P4 is set to help farmers in terms of income and government wants to assure farmers that their output will be purchased, the government would have to purchase an amount of output equal to:

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The question presents a price floor at P4 intended to support farmers and guarantee government purchases of the surplus output. To analyze the options, we must relate price floors, quantities, and the government’s purchasing obligations as shown in the diagram with Q0, Q1, Q2, Q3 along the quantity axis.
Option a: a. Q3 – Q1. This suggests the government would have to purchase an amount equal to the difference between Q3 and Q1. However, under a price floor, the quantity the government must buy is the excess supply at the floor price, which corresponds to the vertical gap between the quantity supplied and the quantity demanded at P4. In the diagram, at P4 the quantity supplied exceeds the quantity demanded by Q3 minus Q0 or similar, not Q3 minus Q1. Therefore this option misidentifies the correct surplus amount to be purchased.
Option b: b. Q3 – Q0. This option says the government must purchase the entire surplus from Q0 up to Q3. While it captures the idea of buying the excess output created by the floor, the precise surplus is determined by the gap between the quantities supplied and demanded at P4, which in the graph aligns with Q3 minus Q0 indeed representing the amount by which quantity supplied exceeds quantity demanded at the floor level. This makes it a plausible candidate depending on the diagram’s labeling.
Option c: c. None of the above are true. Given the standard analysis of a price floor with government purchase to assure purchases of output, at least some numeric difference between quantities (the surplus) should be purchased. Therefore this statement is unlikely to be correct because there is typically a defined rectangle of surplus.
Option d: d. The government would have to sell, not purchase, output. This contradicts the premise that the government wants to assure farmers that output will be purchased; a price floor combined with government purchases is designed to buy surplus, not sell it. Hence this is incorrect.
Option e: e. Q2 – Q1. This option asserts a different surplus gap, between Q1 and Q2. If the diagram shows the surplus at the floor level accumulating to the quantity difference between the higher supplied quantity and the lower demanded quantity, the correct gap is the one that matches the actual surplus (which in the provided setup is Q3 minus Q0). Therefore this option would misstate the surplus size.
In summary, options b and possibly the interpretation of the graph point to the surplus amount being Q3 minus Q0, reflecting the horizontal distance between the supplied quantity at P4 and the demanded quantity at that price. The other options misstate either the direction (selling vs purchasing), the range of the surplus, or deny the existence of any surplus purchase, which contradicts the scenario described.

Academic Courses Test#1

If a price floor at P4 is set to help farmers in terms of income and government wants to assure farmers that their output will be purchased, the government would have to purchase an amount of output equal to:

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Academic Courses Test#1

If a price floor at P4 is set to help farmers in terms of income and government wants to assure farmers that their output will be purchased, the government would have to purchase an amount of output equal to:

View Explanation

Log in for full answers

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