When the purchase of a good is subsidized, economic analysis indicates that
A) the buyers of the product will gain at the expense of the sellers.
B) the sellers of the product will gain at the expense of the buyers.
C) the buyers and sellers will benefit equally.
D) the more inelastic the supply of the good relative to its elasticity of demand, the larger the share of benefits that will accrue to the sellers of the product.

Question

Quizplus · Accepted Answer

When the purchase of a good is subsidized, the subsidy reduces the cost of production for the producers, allowing them to increase their supply of the product. As a result, the more inelastic the supply of the good relative to its elasticity of demand, the larger the share of the benefits that will accrue to the sellers of the product. This is because buyers are willing to pay higher prices for the product due to their relatively inelastic demand, while the subsidy allows sellers to decrease their costs and increase their profits. Therefore, option D is the correct choice.

When the Purchase of a Good Is Subsidized, Economic Analysis