Direct Payment Programs involve the setting of a target price for an agricultural commodity. When the target price is set higher than the market price which of the following will not occur?Question 44Select one:a.there will be an increase in domestic or foreign demand, increasing farm prices and income. b.there will be a surplus of that product relative to the demand for it.c.there will be downward pressure on the market equilibrium price. d.the government will make deficiency payments to farmers.e.excess production.

The correct answer is a. There will be an increase in domestic or foreign demand, increasing farm prices and income.

Here's why:

Direct Payment Programs are a form of agricultural subsidy where the government sets a target price for a certain commodity. If this target price is set higher than the market price, it means that farmers are being paid more than what the market would typically offer for their product.

a. An increase in domestic or foreign demand is not a direct result of setting a target price higher than the market price. Demand is influenced by a variety of factors, including consumer preferences and income levels, not just the price of a product.

b. There will likely be a surplus of that product relative to the demand for it. This is because the higher price paid to farmers encourages them to produce more of the commodity, which can lead to an oversupply if demand doesn't increase at the same rate.

c. There will be downward pressure on the market equilibrium price. This is because the surplus of the product (from b) can lead to a decrease in its market price.

d. The government will make deficiency payments to farmers. This is the main feature of Direct Payment Programs - when the market price is lower than the target price, the government pays farmers the difference.

e. Excess production is likely to occur. As mentioned in b, the higher price encourages farmers to produce more, which can lead to excess production if not matched by an increase in demand.