Who receives the benefit of a subsidy offered to consumers of a product 1 The

Who receives the benefit of a subsidy offered to

This preview shows page 4 - 6 out of 12 pages.

21. Who receives the benefit of a subsidy offered to consumers of a product? 1.The subsidy is helpful to buyers since this is a subsidy to consumers. 2.The subsidy is helpful to sellers since the buyers are purchasing more. 3.The subsidy is helpful to buyers and sellers, with the more responsive party receiving less of the subsidy. 4.The subsidy is not helpful to buyers nor sellers because the government is creating a deadweight loss. 5.The subsidy is helpful to buyers and sellers, with the more responsive party receiving more of the subsidy. 22. Suppose producers are price responsive but buyers are not at all price responsive (buyers are perfectly price inelastic). What would happen if producers were offered a $3 subsidy for producing and selling their product to these consumers? 23. Suppose a market is not initially in market failure so that the free market outcome is the socially optimal outcome. If we impose either a tax or a subsidy on this market then we can predict that the market will:
Image of page 4