Why Is There a Deadweight Loss Associated with Subsidy Payments

question 83

Multiple Choice

Why is there a deadweight loss associated with subsidy payments?

• A) There is no deadweight loss from a subsidy.
• B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced.
• C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them.
• D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.

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