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.

Question

Quizplus · Accepted Answer

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.

What Is the Welfare Impact of a Subsidy Policy