Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased competition among producers
B
Lower prices for consumers
C
Overproduction leading to market distortions
D
Decreased government revenue
Understanding the Answer
Let's break down why this is correct
Answer
A potential unintended consequence of government subsidies on producers in a market is that they can lead to overproduction. When the government gives money to producers, they may feel encouraged to make more products than the market actually needs. This can result in a surplus of goods, which can drive prices down and harm smaller producers who cannot compete with the larger, subsidized ones. For example, if the government subsidizes corn farmers, they might grow more corn than people want to buy, causing prices to fall and making it difficult for local farmers to sell their corn at a fair price. Ultimately, while subsidies aim to help producers, they can disrupt the balance of supply and demand in the market.
Detailed Explanation
When the government gives money to producers, they might make too much of a product. Other options are incorrect because Some might think subsidies increase competition; It's a common belief that subsidies always lower prices for consumers.
Key Concepts
pricing effects
unintended consequences
Topic
Government Subsidies and Market Effects
Difficulty
medium level question
Cognitive Level
understand
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