State the 2 reasons for price support
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Explanation:
There are three possibilities for how the price support is implemented: (1) no surplus exists, (2) the surplus exists, and (3) the government purchases the surplus.
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Price Supports Cause Overproduction. By supporting prices above the market-clearing level, governments encourage farmers to expand production. ... Price supports cause larger production and smaller consumption (since consumers will buy less of any good as its price rises), resulting in overproduction at the support price.
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