Multiple choice

Directions: For this question, select the best of the answer choices given.

A severe drought can actually lessen the total amount of government aid that United States farmers receive as a group. The government pays farmers the amount, if any, by which the market price at which crops are actually sold falls short of a preset target price per bushel for the crops. The drought of 1983, for example, caused farm-program payments to drop by $10 billion. Given the information above, which of the following, if true, best explains why the drought of 1983 resulted in a reduction in farm-program payments?

  1. Prior to the drought of 1983, the government raised the target price for crops in order to aid farmers in reducing their debt loads.

  2. Due to the drought of 1983, United States farmers exported less food in 1983 than in the preceding year.

  3. Due to the drought of 1983, United States farmers had smaller harvests and thus received a higher market price for the 1983 crop than for the larger crop of the preceding year.

  4. Due to the drought of 1983, United States farmers planned to plant smaller crops in 1984 than they had in 1983.

  5. Despite the drought of 1983, retail prices for food did not increase significantly between 1982 and 1983.

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C Correct answer
Explanation

The government pays farmers the difference between target price and actual market price. Drought reduces supply, which increases market prices. Higher market prices mean smaller differences from target prices, thus lower government payments. This explains the counterintuitive result that drought decreased aid.

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