If the government decides to subsidize a good, it will typically do all of the following except:
A)add to consumer surplus.
B)add to producer surplus.
C)have a positive impact on the government's budget.
D)create a deadweight loss.

Question

Quizplus · Accepted Answer

Government subsidies typically involve the government providing financial assistance to producers or consumers of a particular good or service. This can help to reduce the cost of producing or purchasing the product, which can lead to an increase in both consumer and producer surplus. However, because the government is effectively providing a form of financial assistance, there may be a cost to the government budget. In other words, the government may have to spend money in order to provide the subsidy, which can have a negative impact on the budget. Therefore, the correct answer is C, which states that a government subsidy will not have a positive impact on the government's budget. The other choices, including A, B, and D, are all possible outcomes of a government subsidy. Subsidies are designed to promote the production and consumption of a particular good, which leads to an increase in consumer and producer surplus. However, subsidies typically have a negative impact on the government's budget since they require the government to spend money to support the subsidy. A deadweight loss may also occur if the subsidized good is not in high demand or if the subsidy leads to overproduction. Therefore, the correct answer is C, because subsidies typically have a negative impact on the government's budget.

If the Government Decides to Subsidize a Good, It Will