When producers receive a subsidy, sellers receive a:

a. lower price than the pre-subsidy equilibrium, and buyers pay a higher one.

b. lower price than the pre-subsidy equilibrium, and buyers pay a lower one.

c. higher price than the pre-subsidy equilibrium, and buyers pay a higher one.

d. higher price than the pre-subsidy equilibrium, and buyers pay a lower one.

Question

Business

Dakota Schmidt

5 June, 11:32

When producers receive a subsidy, sellers receive a:

a. lower price than the pre-subsidy equilibrium, and buyers pay a higher one.

b. lower price than the pre-subsidy equilibrium, and buyers pay a lower one.

c. higher price than the pre-subsidy equilibrium, and buyers pay a higher one.

d. higher price than the pre-subsidy equilibrium, and buyers pay a lower one.

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Answers (1)

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Lennon · Answer 1

b. lower price than the pre-subsidy equilibrium, and buyers pay a lower one.

Explanation:

A subsidy is a governments intervention in the form of cash or tax cuts. The government offers subsidies to producers to motivate them to produce more or to lower their cost of production. As a result, there will be more products in the market or goods will be cheaper.

Equilibrium price refers to the price determined by the forces of supply and demand. It is the intersection of the demand and supply curve. It is the price that buyers are willing to pay for a certain quantity of a product; all other factors held constant.

Should a producer receive a subsidy, It will lower his cost of production. The producer's output will cost less. He can afford to offer sellers a lower price as a result of the subsidy. The traders will be able to sell the products in the market at a low price compared to a situation with no subsidy.