Fiscal Cost of Surplus Removal in Minimum Price Policy

Steps:

• An effective minimum price above equilibrium creates surplus as quantity supplied exceeds demand.
• To reduce consumption, government sets price floor but faces excess alcohol supply.
• Buying surplus removes excess to stabilize market, but requires government expenditure.
• This fiscal burden discourages purchase, as it uses public funds without direct consumption reduction benefit.

Why A is correct:

• Surplus purchase demands government funding to buy unsold alcohol at minimum price, increasing taxpayer costs per basic supply-demand model.

Why the others are wrong:

• B: Buying surplus pays producers for excess output, raising their total incomes.
• C: Removing surplus prevents shortages by maintaining supply above demand at the price floor.
• D: Surplus buy-up sustains production levels, avoiding unemployment among producers.

Final answer: A