Subsidies and taxes have opposite effects on the quantity exchanged in a market. A subsidy increases the quantity exchanged by making it cheaper for consumers or more profitable for producers, while a tax decreases the quantity exchanged by making goods or services more expensive for consumers or less profitable for producers.

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A Subsidy

Question 151

Multiple Choice

A subsidy:

A) has the exact same impact on the quantity exchanged as a tax.
B) has a larger impact on the quantity exchanged than a tax of the same amount.
C) has a smaller impact on the quantity exchanged than a tax of the same amount.
D) has the exact opposite impact on the quantity exchanged than a tax of the same amount.

Correct Answer: