When a subsidy program allocates subsidies to a subset of the population, the result is greater demand and higher prices in the market where purchases are subsidized, raising costs for
A) only those buyers receiving the subsidies.
B) primarily those buyers receiving the subsidies.
C) all buyers in that market.
D) only the taxpayers who pay for the subsidy.

Question

Quizplus · Accepted Answer

When a subsidy program allocates subsidies to a subset of the population, the demand in the market where purchases are subsidized increases. This increase in demand raises the prices not only for those buyers receiving the subsidies (choice A and B) but also for all buyers in that market (choice C). The increase in prices occurs because suppliers can charge higher prices due to the increased demand. Therefore, the cost of the subsidy program is borne by all buyers in that market. Only choice D is incorrect. Although taxpayers do pay for the subsidy, they do not experience the higher prices in the market where the purchases are subsidized.

When a Subsidy Program Allocates Subsidies to a Subset of the Population