Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Per unit subsidies decrease the marginal cost of production for firms.
B
These subsidies may lead to overproduction of goods that are not socially optimal.
C
Per unit subsidies always result in higher prices for consumers.
D
They help align production levels with allocative efficiency by encouraging firms to produce more.
E
Per unit subsidies eliminate the need for government intervention in markets.
Understanding the Answer
Let's break down why this is correct
Answer
Per unit subsidies are payments made by the government to producers for each unit of a good they produce, which can affect market dynamics in several ways. First, these subsidies usually lower the cost of production for businesses, allowing them to sell their goods at a lower price. For example, if a farmer receives a subsidy for each bushel of corn produced, they might lower the price of corn, making it cheaper for consumers. This can lead to increased demand for the product, as more people can afford to buy it. Additionally, the subsidy can encourage more production, which can lead to an oversupply in the market if not managed properly.
Detailed Explanation
All the options misunderstand how per unit subsidies work in the market. Other options are incorrect because Some might think subsidies lower production costs; It's a common belief that subsidies always cause overproduction.
Key Concepts
Per Unit Subsidies
Market Dynamics
Allocative Efficiency
Topic
Per Unit Subsidies in Economics
Difficulty
medium 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.