Final answer:
A government domestic production subsidy can result in a deadweight loss by creating an inefficient outcome that reduces total social surplus and prevents mutually beneficial transactions between suppliers and demanders,
while also leading to higher prices for consumers and a lack of gains from international trade.
Step-by-step explanation:
A domestic production subsidy by the government can lead to a deadweight loss due to an inefficient outcome and a reduced total surplus of society.
This loss in social surplus, when an economy produces at an inefficient quantity, is a deadweight loss, represented by the areas U + W in a theoretical figure. Because the subsidy is functioning as price control, it can prevent some suppliers and demanders from making transactions they would otherwise willingly make.
In addition to causing deadweight loss, protectionist measures such as subsidies can force consumers to pay higher prices and prevent the economy from reaping the benefits of international trade, comparative advantage, and economies of scale.
A domestic production subsidy granted by the government can lead to a loss in producer surplus. A production subsidy is a government policy that provides financial assistance to domestic producers in order to increase their production and competitiveness.
While this can benefit producers by reducing their production costs and increasing their profits, it can also lead to a decrease in producer surplus.
When a subsidy is implemented, it effectively lowers the cost of production for domestic producers, allowing them to lower their prices and potentially increase their market share.
However, this can result in a decrease in producer surplus because producers are receiving lower prices for their goods or services. So, option c) a loss in producer surplus is the correct answer.