Asked by Abigail Small on Jul 06, 2024
Verified
What is the welfare impact of a subsidy policy?
A) Producer surplus increases, consumer surplus declines, and total welfare declines.
B) Producer and consumer surplus increase, and these gains are larger than the government cost.
C) Producer and consumer surplus increase, and these gains are smaller than the government cost.
D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.
Welfare Impact
Welfare Impact refers to the effect on the overall well-being of individuals or communities, often assessed when considering economic policies or market changes.
Subsidy Policy
A government initiative to support or financially assist a sector, reducing costs or encouraging production and consumption.
Government Cost
Expenses incurred by governmental bodies in the execution of policies, projects, and provision of public services.
- Learn about the concept of deadweight loss and its causative factors in the setting of taxation and subsidies.
- Assess the consequences of taxation and subsidy policies on efficiency and fairness.
Verified Answer
AF
Adrienne FranklinJul 07, 2024
Final Answer :
C
Explanation :
Subsidies lead to an increase in both producer and consumer surplus because they lower the cost for producers and often lead to lower prices for consumers. However, the cost to the government (taxpayers) of providing the subsidy often exceeds these gains, leading to a net loss in total welfare.
Learning Objectives
- Learn about the concept of deadweight loss and its causative factors in the setting of taxation and subsidies.
- Assess the consequences of taxation and subsidy policies on efficiency and fairness.