Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases the quantity produced, aligning supply with social demand.
B
It leads to a permanent increase in prices for consumers.
C
It reduces the number of firms in the market due to increased costs.
D
It creates a surplus of labor in related industries.
Understanding the Answer
Let's break down why this is correct
Answer
When a government provides a subsidy for a product, it lowers the cost of production for businesses. This encourages them to produce more of that product because they can sell it at a lower price while still making a profit. As a result, more of the product becomes available in the market, which can lead to increased consumption. However, while this can help some consumers by making the product cheaper, it may also lead to overproduction, meaning resources are not used as efficiently as they could be. For example, if a government subsidizes electric cars, more companies might produce them, but if too many are made, it could divert resources from other important areas of the economy.
Detailed Explanation
A subsidy helps producers make more of a product. Other options are incorrect because Some might think subsidies always raise prices; It's a common belief that subsidies increase costs.
Key Concepts
Government intervention
Market efficiency
Allocative efficiency
Topic
Government and Market Efficiency
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.