Question

Explain, using supply and demand analysis, the consequences for the wheat market of providing price supports for agricultural production in the United States? Who benefits from them? Who loses out?

Answer 1

A price support in the form of a price floor will increase the price of wheat artificially in the market. At a higher price the demand for the wheat will come down and the supply will increase. This will decrease the consumer surplus and cause a dead weight loss in the market.

If the government steps in to buy all the surplus wheat in the market then only the consumer loose and the producer will be well off. If the government doesn't buy the surplus then both the producer and the consumer will lose and deadweight loss will increase.