The average price must be computed properly so that govt. Now the demand curve facing farmers is downward sloping. When the government wants to raise farm incomes in addition to stabilize them, it attempts to maintain farm prices above their equilibrium levels. The government buys in good times and sells in bad times but on average it buys more than it sells to maintain a price above Pe. The taxpayers are effectively subsidizing farm incomes.
Production uses resources and it involves costs to members of society.
Costs are real and they are incurred no matter who provides the good. Government intervention can shift costs from one group to another, but it cannot eliminate the costs. The price system responds to the need for a change in the allocation of resources and leads to production of some goods to expand and production of other goods to contract. Government intervention affects resource allocation Government intervention changes the allocation of resources. Government intervention generally changes the prices of goods from what they would be in a free market.