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.
Target prices have several consequences.
As with the price support system, farmers sell more output and receive more revenue. Unlike price supports, there is no surplus associated with the target price. A potential surplus does develop, but it is sold on the market at a price below the market equilibrium price. Government must pay farmers the difference between the target price and the price for which the product is sold by making a deficiency payment. The money for this deficiency payment comes from the taxpayer.