If the government quit subsidizing a product, consumer surplus would _____ and producer surplus would _____.
A) increase; decrease
B) decrease; decrease
C) increase; increase
D) decrease; increase

Question

Quizplus · Accepted Answer

When the government stops subsidizing a product, the price of the product typically increases because the cost of production or selling price is no longer offset by the subsidy. This leads to a decrease in consumer surplus because consumers have to pay more for the product or may buy less of it. Producer surplus also decreases because the producers lose the financial support from the government, which might have helped them to sell at lower prices or produce more efficiently, leading to potentially lower sales or higher production costs.

If the Government Quit Subsidizing a Product, Consumer Surplus Would