Question

Which of the following agricultural programs will result in the smallest deadweight loss assuming farmers receive the same level of benefit in each case?
A. Instituting a price support program with the government purchasing any surplus of the good.
B. Instituting an acreage limitation program by paying farmers to take land out of production.
C. Paying money to farmers directly.
D. All of the above have the same effect on DWL because farmers receive the same benefit in each case.

Answer 1

Answer:

C, Paying money to farmers directly

Explanation:

Deadweight loss is defined as a loss in the economic efficiency that occurs when the market equilibrium for a good or service is not met/acheived/attained.

It can also be called excess burden or inefficiency of allocations.

From the question, the smallest dead weight loss will be to pay money directly to farmers as this will try to create almost an equilibrium for the goods produced by the farmers. Paying money directly to farmers will also ensure that the prices of goods and services are agreeable and of benefit to both the farmers, consumers/buyers and the government as well.

Cheers.