When Does a Subsidy That Benefits Consumers Result in a More

question 294

Multiple Choice

When does a subsidy that benefits consumers result in a more efficient allocation of a resource?

• A) when the good being produced or consumed is not scarce
• B) when the good being produced or consumed generates a negative externality
• C) when the good being produced or consumed generates a positive externality
• D) when the equilibrium price of the good is one that consumers don't like

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Definitions:

Quantity of Output

The total amount of goods or services produced by a firm or economy over a specific period.

Total Cost

The total expenses involved in creating goods or services, encompassing both constant and changeable costs.

Average Variable Cost

The cost per unit of variable inputs divided by the total output, showing the variable cost component of producing each unit.

Average Fixed Cost

The fixed costs (costs that do not change with the level of output) of production divided by the quantity of output produced, decreasing as production increases.