test 17

vaivish · Posted: Fri Sep 05, 2008 5:18 am Post subject: test 17

. The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.
The government’s program, if successful, will not be a net burden on the budget. Which of the following, if true, is the best basis for an explanation of how this could be so?
(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
(B) Cotton production in several counties other than Q declined slightly the year that the support-payment program went into effect in Q.
(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
(D) The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.

Oa is a.

banker1 · Posted: Sat Sep 06, 2008 6:21 pm Post subject:

We are looking for an explanation for the government's program.

It would make sense for the government to support the price of cotton so that they continue to earn tax on the income of farmers and do not have to provide tax credits for those who lose money.

How does the government subsidize cotton prices (spend money), while not being burdensome on the budget?

Subsidize cotton prices at a rate that enable farmers to continue earning money (so they can tax it) but not at a rate where the government is giving away more money than it brings in.

(B), (C), and (E) are out immediately.

(D) requires some thought but is wrong (I originally picked this)

(A) is the answer.

These are so easy when you know the answers!

NSNguyen · Posted: Thu Sep 11, 2008 7:50 am Post subject:

IMO: A