-The figure above shows the market for tomatoes. When the government introduces a subsidy for tomatoes of $4 a kilogram, the quantity produced is _______ because _______.

Question

Quizplus · Accepted Answer

When the government introduces a subsidy, it typically lowers the cost of production for producers, encouraging them to produce more. However, this increased production can lead to inefficiency if it causes the quantity produced to exceed the socially optimal level, where marginal social benefit equals marginal social cost. In this case, the subsidy leads to a situation where the marginal social benefit of the last unit produced is less than its marginal social cost, indicating inefficiency.

-The Figure Above Shows the Market for Tomatoes