What do subsidies and commodity taxes have in common?
A) In both cases, who the policy mainly affects depends on who is assigned the tax or subsidy.
B) Both policies create inefficient increases in trade.
C) Both policies have a greater impact on the side of the market with the more inelastic curve.
D) Both policies decrease deadweight loss.

Question

Quizplus · Accepted Answer

Both subsidies and commodity taxes have a greater impact on the side of the market with the more inelastic curve. In the case of subsidies, producers with a relatively elastic demand curve benefit more from the subsidy as they are able to increase their supply at a lower cost. In the case of a commodity tax, consumers with a relatively inelastic demand curve are more affected, as they are less able to reduce their quantity demanded in response to a price increase.

What Do Subsidies and Commodity Taxes Have in Common