If consumption of a good is subsidized by the government, then the MU/P of that good among consumers will
A) decrease.
B) become negative.
C) increase.
D) not be affected.

Question

Quizplus · Accepted Answer

When the consumption of a good is subsidized, the price of the good decreases, which leads to an increase in the quantity demanded. As a result, the marginal utility of the good among consumers increases, since they are willing to consume more at the lower price. However, the price has decreased, so the MU/P of the good will increase. Therefore, choice C is the correct answer.

If Consumption of a Good Is Subsidized by the Government