-The figure above shows the market for pants.If the government subsidizes the production of pants so that production expands from 6 million pairs to 7 million pairs,
A) there would be no deadweight loss.
B) the government's policy would have no effect on the sum of consumer surplus and producer surplus.
C) a deadweight loss would result.
D) the government's policy would increase the sum of consumer surplus and producer surplus.
E) production would be even more efficient than if 6 million pairs of pants are produced because more is always better than less.

Question

-The figure above shows the market for pants.If the government subsidizes the production of pants so that production expands from 6 million pairs to 7 million pairs,
A) there would be no deadweight loss. 
B) the government's policy would have no effect on the sum of consumer surplus and producer surplus. 
C) a deadweight loss would result. 
D) the government's policy would increase the sum of consumer surplus and producer surplus. 
E) production would be even more efficient than if 6 million pairs of pants are produced because more is always better than less.

Quizplus · Accepted Answer

DSubsidizing the production of pants to increase from 6 million to 7 million pairs would likely create a deadweight loss (C) because it could lead to overproduction, where the cost of producing the additional pants exceeds the value those pants bring to consumers. Additionally, the subsidy could increase the sum of consumer surplus and producer surplus (D) by making pants cheaper for consumers and/or more profitable for producers, but this increase comes at the expense of government spending, which is not accounted for in consumer and producer surplus and can lead to inefficiencies in the market.

-The Figure Above Shows the Market for Pants