Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

6. Introduction to Taxes and Subsidies

Subsidies

Microeconomics

6. Introduction to Taxes and Subsidies

Subsidies

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Multiple Choice

A government wants to increase the use of solar panels by offering a $100 subsidy for each solar panel purchased. The addition of this subsidy will:

Increase the quantity supplied

Decrease the quantity supplied

Create a deadweight loss in the market for solar panels

Both (a) and (c)

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Verified step by step guidance

Understand the concept of a subsidy: A subsidy is a financial assistance provided by the government to encourage the production or consumption of a good. In this case, the government offers a $100 subsidy for each solar panel purchased.

Analyze the effect of the subsidy on supply: A subsidy effectively lowers the cost of production for suppliers, which typically leads to an increase in the quantity supplied as producers are willing to supply more at each price level.

Consider the impact on market equilibrium: With the subsidy, the supply curve shifts to the right, leading to a new equilibrium with a higher quantity of solar panels sold and potentially a lower market price.

Examine the concept of deadweight loss: Deadweight loss occurs when market transactions are not at their most efficient level, often due to external interventions like taxes or subsidies. The subsidy can lead to overproduction, where the cost of producing additional units exceeds the value to consumers, creating inefficiency.

Conclude with the combined effects: The subsidy increases the quantity supplied and can create a deadweight loss due to the inefficiency introduced in the market. Therefore, both (a) and (c) are correct.