A price support is a minimum price set by government. Price cannot fall below this minimum. Price supports for milk have several consequences. The price supports create an excess supply of milk. Price supports increase the revenues of farmers because they sell more milk at a higher price.
Price supports mean that consumers spend more for milk.
More is spent because the price support causes price to be greater than the equilibrium price and because government must raise taxes to purchase and store the excess supply of milk. In order to prevent increases in the excess supply of milk created by the supports, government must restrict the flow of imported milk and milk products. D. Target Prices and Deficiency Payments 1. Instead of enacting price supports, government enacts target prices for some agricultural products. A target price is simply a guaranteed price for a product.