Which of the following is a correct statement?
A) Producer surplus is an external benefit.
B) Consumer surplus is an external benefit.
C) A government subsidy paid to a producer is an external benefit.
D) None of the above statements are correct.

Question

Quizplus · Accepted Answer

None of the statements are correct.

Producer surplus is the difference between the price a producer is willing to sell a good for and the actual price they receive. It is not an external benefit, as it only reflects the benefit received by the producer themselves.

Consumer surplus is the difference between the price a consumer is willing to pay for a good and the actual price they pay. It is also not an external benefit, as it only reflects the benefit received by the consumer themselves.

A government subsidy paid to a producer is not an external benefit either, as it is a direct payment from the government to the producer intended to help them increase profits or lower costs. It is not a third-party benefit received by someone who did not purchase the good or service.

Which of the Following Is a Correct Statement