Question

When a subsidy is paid to potato​ growers, the market equilibrium quantity of potatoes​ ______ and market price​ ______. A. ​decreases; rises B. ​increases; rises C. ​decreases; falls D. ​increases; falls In the market for​ potatoes, the marginal social cost​ _______ marginal social benefit. A. is less than B. equals C. exceeds

Answer 1

Option (D) is correct.

Option (C) is correct.

Step-by-step explanation:

When a subsidy is provided by the government to the producers of potatoes then this will encourage the potato grower to grow more potatoes. Hence, there is a rightward shift in the supply curve in the market of potatoes. Therefore, as a result of this shift equilibrium quantity of potato increases and equilibrium price of potato decreases.

This will also lead to an increase in the marginal social cost in the market for potatoes as subsidy given to the potato growers. This clearly shows that marginal social cost exceeds the marginal social benefit.