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A severe drought can actually lessen the total amount of [#permalink]
12 May 2010, 05:11
67% (01:22) correct
33% (00:34) wrong based on 4 sessions
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A severe drought can actually lessen the total amount of government aid that United States farmers receive as a group. The government pays farmers the amount, if any, by which the market price at which crops are actually sold falls short of a preset target price per bushel for the crops. The drought of 1983, for example, caused farm-program payments to drop by $10 billion. Given the information above, which of the following, if true, best explains why the drought of 1983 resulted in a reduction in farm-program payments? (A) Prior to the drought of 1983, the government raised the target price for crops in order to aid farmers in reducing their debt loads. (B) Due to the drought of 1983, United States farmers exported less food in 1983 than in the preceding year. (C) Due to the drought of 1983, United States farmers had smaller harvests and thus received a higher market price for the 1983 crop than for the larger crop of the preceding year. (D) Due to the drought of 1983, United States farmers planned to plant smaller crops in 1984 than they had in 1983. (E) Despite the drought of 1983, retail prices for food did not increase significantly between 1982 and 1983.
The farm-program payments are equal to the difference between the preset target price and and the market price.
As the difference reduces the farm program payments will reduce.
Option C mentions that the farmers received higher market price than the previous year which therefore might have reduced the difference between the target price and market price. so the payments were less.