Which of the following statements is TRUE regarding subsidy?
A) A subsidy causes the value of goods to exceed the cost of producing the goods.
B) A subsidy reduces deadweight loss of nonbeneficial trade.
C) A subsidy means that the sellers receive less than buyers pay.
D) Suppliers receive more benefit of a subsidy if the elasticity of supply is less than the elasticity of demand.

Question

Quizplus · Accepted Answer

When the elasticity of supply is less than the elasticity of demand, suppliers will receive more benefit from the subsidy because they can increase the price and still sell a large quantity. This results in a larger increase in revenue for the suppliers compared to the decrease in price that buyers receive. Option A is incorrect because a subsidy lowers the cost of production, which can lead to lower prices for consumers. Option B is incorrect because a subsidy may create a deadweight loss if it causes overproduction and inefficiency. Option C is incorrect because a subsidy means that sellers receive more than they would without the subsidy, not less.

Which of the Following Statements Is TRUE Regarding Subsidy