If the Government Subsidizes a Product, What Is the Relationship

question 21

Multiple Choice

If the government subsidizes a product, what is the relationship between the price that buyers pay (P_B) and the price that sellers receive (P_S) ?

• A) P_B + subsidy = P_S
• B) P_B + P_S = subsidy
• C) P_B = P_S + subsidy
• D) P_B (1 + subsidy) = P_S

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Definitions:

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Pricing Constraints

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