The Benefit of a Subsidy Will Go Primarily to Buyers

question 222

Multiple Choice

The benefit of a subsidy will go primarily to buyers when the

• A) demand for the product is highly inelastic and supply is relatively elastic.
• B) demand for the product is highly elastic and the supply is relatively inelastic.
• C) subsidy is legally (statutorily) granted to the seller of the product.
• D) subsidy is legally (statutorily) granted to the buyer of the product.

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Definitions:

Price Ceiling

A legal maximum price that can be charged for a good or service.

Equilibrium Price

The price level where the amount of products provided matches the amount of products customers want to buy.

Equilibrium Price

The price at which the quantity of a product offered for sale matches the quantity that buyers are willing to buy, leading to a stable market condition.

Price Floor

A government- or group-imposed limit on how low a price can be charged for a product, above the equilibrium price, leading to surpluses.