📚 Learning Guide
Government Policies and Market Efficiency
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Arrange the following steps in the process of how government interventions, like subsidies, impact market efficiency, starting from the introduction of the policy to the final outcome: A) Producers increase supply due to higher prices received, B) Government implements a subsidy, C) Consumer prices decrease, D) Market experiences deadweight loss.

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Learning Path

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Choose the Best Answer

A

B → A → C → D

B

B → C → A → D

C

C → B → A → D

D

A → B → C → D

Understanding the Answer

Let's break down why this is correct

Answer

When the government implements a subsidy, it provides financial support to producers, making it easier for them to produce goods. This extra money encourages producers to increase their supply because they can now receive higher prices for their products. As a result of this increased supply, consumer prices tend to decrease, making goods more affordable for buyers. However, while this may seem beneficial, the market can experience deadweight loss, which means that the overall efficiency of the market is reduced because resources are not being used in the most effective way. For example, if the government subsidizes corn production, farmers may grow more corn than needed, leading to wasted resources and less variety in food choices.

Detailed Explanation

First, the government gives money to help producers. Other options are incorrect because This option suggests that prices drop before producers respond; This option starts with lower prices, which is not correct.

Key Concepts

Government interventions
Market efficiency
Deadweight loss
Topic

Government Policies and Market Efficiency

Difficulty

medium level question

Cognitive Level

understand

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