If the government subsidizes the production of a good:
A) deadweight loss results because not enough of the good is exchanged.
B) deadweight loss results because too much of the good is exchanged.
C) consumer surplus and producer surplus both fall.
D) total surplus is higher than it would have been without the subsidy.

Question

Quizplus · Accepted Answer

A subsidy can lead to overproduction, resulting in a deadweight loss because resources are not allocated efficiently, and too much of the good is exchanged compared to the socially optimal level.

If the Government Subsidizes the Production of a Good