What Is the Welfare Impact of a Subsidy Policy

question 40

Multiple Choice

What is the welfare impact of a subsidy policy?

• A) Producer surplus increases, consumer surplus declines, and total welfare declines.
• B) Producer and consumer surplus increase, and these gains are larger than the government cost.
• C) Producer and consumer surplus increase, and these gains are smaller than the government cost.
• D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.

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Definitions:

Imports

Goods and services bought from foreign countries for domestic consumption or use.

Exports

Goods or services produced in one country and sold to buyers in another country.

Budget Surplus

A situation where income or revenues exceed expenditures over a specific period of time, typically a fiscal year.

Budget Deficit

A budget deficit happens when a government's expenditures surpass its revenues within a given fiscal period.