If the government subsidises the production of a good,
A) an efficient outcome for producers occurs.
B) overproduction relative to the efficient quantity occurs.
C) a deadweight loss is created.
D) Both answers B and C are correct.

Question

Quizplus · Accepted Answer

When the government subsidizes the production of a good, it often leads to overproduction relative to the efficient quantity because the subsidy lowers the cost of production, encouraging producers to make more of the good than what would be produced at the market equilibrium. This overproduction can create a deadweight loss, as resources are not allocated in the most efficient manner, leading to inefficiencies in the market.

If the Government Subsidises the Production of a Good