Use the following statements to answer this question: I. For downward sloping demand and upward sloping supply curves, the government expenditure used to pay for a subsidy program exceeds the sum of the changes in producer and consumer surplus.
II) To model the price-quantity impacts of a subsidy, we can shift the demand curve upward by the amount of the per-unit subsidy payment.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Question

Quizplus · Accepted Answer

I is true because the government expenditure on the subsidy is greater than the increase in producer surplus (which is zero) and the decrease in consumer surplus. II is true because a subsidy shifts the demand curve upward by the amount of the subsidy.

Use the Following Statements to Answer This Question: I