Question

The government sets the price of subsidized corn too low. Which of the following statements describes the result?

At that price, quantity demanded exceeds quantity supplied.
At that price, quantity demanded equals quantity supplied.
At that price, quantity demanded is lower than quantity supplied.
At that price, quantity demanded and quantity supplied reach a price floor.

Answer 1

Because the price of the corn is very low many people will decide to go for it. Thus, the result will be that the quantity demanded for will exceed the quantity supplied.

Answer 2

Answer:

At that price, quantity demanded exceeds quantity supplied.

Explanation:

The subsidy is a government financial aid for a particular sector to produce a type of good, such as corn. This is applied when the value of the product is low enough to make production unfeasible. Because corn is an important product for the food industry and animal feed, the government gives producers a subsidy, which will be above market value. However, if the subsidy is low enough to not stimulate corn production, demand for the product will exceed supply. The solution to this is to raise the price of corn or to increase subsidies so that farmers have a stimulus to produce a quantity that meets demand.