📚 Learning Guide
Per Unit Subsidies in Economics
hard

If a government implements per unit subsidies for a specific good, what is the most likely immediate effect on the market for that good?

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Choose the Best Answer

A

The supply of the good increases, leading to lower prices.

B

The demand for the good decreases, causing prices to rise.

C

The quality of the good produced improves significantly.

D

The overall market demand for the good becomes perfectly elastic.

Understanding the Answer

Let's break down why this is correct

Answer

When a government provides per unit subsidies for a specific good, it means they are giving money to producers for each unit they sell. This makes it cheaper for producers to make that good, which usually leads to an increase in supply. As a result, the supply curve shifts to the right, meaning more of the good is available in the market. For example, if the government subsidizes bread production, bakeries can sell more bread at lower prices, encouraging more people to buy it. Overall, the immediate effect is that consumers benefit from lower prices and more availability of that good.

Detailed Explanation

When the government gives money for each unit sold, producers can make more of the good. Other options are incorrect because Some might think that less demand means higher prices; It's a common mistake to think subsidies improve quality.

Key Concepts

Per Unit Subsidies
Market Supply and Demand
Economic Efficiency
Topic

Per Unit Subsidies in Economics

Difficulty

hard level question

Cognitive Level

understand

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