When government gives a subsidy to buyers of good X, the benefits of the subsidy flow to
A) the buyers of good X only.
B) the sellers of good X only.
C) the buyers and sellers of good x equally.
D) both the buyers and sellers of good x, and the distribution of the benefits will be dependent on the elasticity of demand and the elasticity of supply.

Question

Quizplus · Accepted Answer

The distribution of the benefits of a subsidy between buyers and sellers depends on the relative elasticities of demand and supply. If demand is more elastic than supply, sellers benefit more, and vice versa.

When Government Gives a Subsidy to Buyers of Good X