Question 1

Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the benefit of the subsidy

Accepted Answer

When demand is highly inelastic and supply is highly elastic, it means that consumers have a strong need and willingness to buy gasoline regardless of its price, while producers have the ability to increase supply quickly in response to any changes in price. Therefore, in this situation, the benefit of the subsidy will primarily go to consumers in the form of lower prices, while producers may not see a significant increase in profit due to their elastic supply.

Question 2

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

Accepted Answer

When a government subsidy is granted to the sellers of a product, the supply curve shifts to the right as the producers are able to supply more at a lower cost. This results in a lower market price for the product, leading to an increase in demand from buyers. As a result, buyers end up capturing some of the benefits of the subsidy in the form of lower prices.

Question 3

When government gives a subsidy to buyers of good X, the benefits of the subsidy flow to

Accepted Answer

Both the buyers and sellers of good X benefit from the subsidy, and the distribution of the benefits will depend on the relative elasticities of demand and supply. If demand is relatively inelastic, then the buyers will benefit more, while if supply is relatively inelastic, then the sellers will benefit more. Ultimately, both parties benefit from the increased exchange and economic efficiency resulting from the subsidy.

Question 4

The more inelastic the demand for a product, the more likely that the actual benefit of a subsidy granted on the product will

Accepted Answer

The answer of The more inelastic the demand for a...

Question 5

If the supply of health care services is highly inelastic, programs that subsidize the cost of purchasing medical services will

Accepted Answer

When the supply of health care services is highly inelastic, the quantity of services supplied does not change much in response to changes in price. Therefore, if programs subsidize the cost of purchasing medical services, the demand for these services will increase, but the supply remains the same, leading to excess demand. This excess demand puts upward pressure on prices, leading to higher prices for medical services.

Question 6

If the federal government began granting a subsidy of 10 cents per apple to apple growers and as a result the price of apples to consumers falls by 8 cents,

Accepted Answer

The subsidy of 10 cents per apple will benefit the apple growers by increasing their revenue. However, since the price of apples to consumers falls by 8 cents, consumers will have to pay less for the same quantity of apples. Therefore, the actual benefit of the subsidy will go mostly to consumers.

Question 7

A subsidy on a product will generate more actual benefit for producers (and less for consumers) when

Accepted Answer

When the supply of the product is relatively inelastic, producers are less responsive to changes in demand, so they are able to increase their prices and capture more of the benefit from the subsidy. Consumers, on the other hand, are less responsive to changes in price, so they do not see as much of a benefit from the subsidy.

Question 8

In the two decades following 1990, subsidized federal loans per full-time student more than tripled. Economic analysis indicates that this expansion in subsidies

Accepted Answer

The expansion in subsidies reduced the net cost of a college education for students receiving the subsidies, but increased the cost of college for other students. This is because the increased availability of subsidized loans led to an increase in overall demand for higher education, which in turn allowed colleges and universities to raise tuition prices without fear of losing students. Therefore, students who did not receive the subsidies ended up paying more for college.

Question 9

A $10 per unit government subsidy paid directly to sellers of heaters will result in

Accepted Answer

The answer of A $10 per unit government subsidy paid...

Question 10

If a $50 subsidy is legally (statutorily) granted to the sellers of exercise equipment and as a result the price of exercise equipment to consumers falls by $30, the actual benefit of the subsidy

Accepted Answer

The answer of If a $50 subsidy is legally (statutorily)...

Question 11

The more elastic the supply of a product, the more likely that the actual benefit of a subsidy granted of the product will

Accepted Answer

The answer of The more elastic the supply of a...

Question 12

If a $300 subsidy is legally (statutorily) granted to the buyers of computers and as a result the selling price of computers rises by $200, the actual benefit of the subsidy

Accepted Answer

The answer of If a $300 subsidy is legally (statutorily)...

Question 13

The benefit of a subsidy will go primarily to buyers when the

Accepted Answer

The answer of The benefit of a subsidy will go...

Question 14

A subsidy on a product will generate more actual benefit for consumers (and less for producers) when

Accepted Answer

When the supply of a product is relatively elastic, a subsidy will result in a larger increase in the quantity supplied by producers, resulting in a larger decrease in the price of the product. This, in turn, results in a larger benefit for consumers compared to producers who will receive a smaller share of the subsidy. Therefore, choice B is the best option.

Question 15

Which of the following generalizations about the benefit of a subsidy is correct?

Accepted Answer

When the demand for a product is more inelastic, a subsidy will result in a larger portion of the benefit being passed on to buyers as the subsidy will lead to a larger increase in quantity demanded and therefore a larger consumer surplus. On the other hand, if the supply of a product is more inelastic, the subsidy will result in a smaller portion of the benefit being passed on to buyers as the subsidy will lead to a larger increase in price rather than quantity supplied, resulting in a smaller consumer surplus. The elasticity of demand and supply therefore affects the distribution of the benefit of a subsidy.

Question 16

In the two decades following 1990, subsidized federal loans per full-time student more than tripled. Economic analysis indicates that this expansion in subsidies

Accepted Answer

The answer of In the two decades following 1990, subsidized...

Question 17

The actual benefit of a government subsidy is determined primarily by

Accepted Answer

The actual benefit of a government subsidy is primarily determined by the elasticities of demand and supply because it influences how much of the subsidy is passed on to consumers and producers. If demand is relatively inelastic, producers would be able to pass on more of the subsidy to consumers in the form of higher prices. Conversely, if supply is relatively inelastic, producers would enjoy a greater share of the subsidy in the form of higher profits. Therefore, the impact of a subsidy can vary depending on the elasticities of demand and supply in the market.

Question 18

When a subsidy program allocates subsidies to a subset of the population, the result is greater demand and higher prices in the market where purchases are subsidized, raising costs for

Accepted Answer

When a subsidy program allocates subsidies to a subset of the population, the demand for the subsidized good increases as the price of the good decreases. This increase in demand leads to higher prices in the market where purchases are subsidized, which raises costs for all buyers in that market, not just those who receive the subsidies. Therefore, the correct answer is C.

Question 19

When a government subsidy is granted to the buyers of a product, sellers can end up capturing some of the benefit because

Accepted Answer

When a government subsidy is granted to the buyers of a product, the demand for the product will increase, causing the price to rise due to the higher demand. Sellers will capture some of the benefit because they can charge a higher price and still sell the same quantity of the product. This is known as the incidence of the subsidy. It can lead to some of the benefit of the subsidy being passed on to sellers rather than buyers.

Question 20

When the purchase of a good is subsidized, economic analysis indicates that

Accepted Answer

When the purchase of a good is subsidized, the price of the good decreases for the consumers, leading to an increase in demand for the product. The increase in demand leads to an increase in the equilibrium price, resulting in a larger share of benefits accruing to the sellers of the product. This effect is more pronounced when the supply of the good is inelastic, meaning that sellers cannot easily adjust their level of production in response to changes in demand. Therefore, the more inelastic the supply of the good relative to its elasticity of demand, the larger the share of benefits that will accrue to the sellers of the product.

Quiz 4: A : Supply and Demand: Applications and Extensions

Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the benefit of the subsidy

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

When government gives a subsidy to buyers of good X, the benefits of the subsidy flow to

The more inelastic the demand for a product, the more likely that the actual benefit of a subsidy granted on the product will

If the supply of health care services is highly inelastic, programs that subsidize the cost of purchasing medical services will

If the federal government began granting a subsidy of 10 cents per apple to apple growers and as a result the price of apples to consumers falls by 8 cents,

A subsidy on a product will generate more actual benefit for producers (and less for consumers) when

In the two decades following 1990, subsidized federal loans per full-time student more than tripled. Economic analysis indicates that this expansion in subsidies

A $10 per unit government subsidy paid directly to sellers of heaters will result in

If a $50 subsidy is legally (statutorily) granted to the sellers of exercise equipment and as a result the price of exercise equipment to consumers falls by $30, the actual benefit of the subsidy

The more elastic the supply of a product, the more likely that the actual benefit of a subsidy granted of the product will

If a $300 subsidy is legally (statutorily) granted to the buyers of computers and as a result the selling price of computers rises by $200, the actual benefit of the subsidy

The benefit of a subsidy will go primarily to buyers when the

A subsidy on a product will generate more actual benefit for consumers (and less for producers) when

Which of the following generalizations about the benefit of a subsidy is correct?

In the two decades following 1990, subsidized federal loans per full-time student more than tripled. Economic analysis indicates that this expansion in subsidies

The actual benefit of a government subsidy is determined primarily by

When a subsidy program allocates subsidies to a subset of the population, the result is greater demand and higher prices in the market where purchases are subsidized, raising costs for

When a government subsidy is granted to the buyers of a product, sellers can end up capturing some of the benefit because

When the purchase of a good is subsidized, economic analysis indicates that