Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the benefit of the subsidy

a. will go primarily to producers.
b. will go primarily to consumers.
c. will be split equally between consumers and producers.
d. cannot be determined because the actual benefit of a subsidy is not influenced by the elasticities of supply and demand.

B

Economics

You might also like to view...

One way to enhance the stability of the banking system is to:

A. Require higher bank capitalization or net worth B. Increase the federal funds rate C. Reduce the required-reserve ratio D. Require more leveraging by banks

Economics

Some nonprice determinants of supply are:

A. prices of related goods, technology, and consumer preferences. B. expectations of sellers and number of buyers in the market. C. consumer preferences, the price of the good, and prices of related goods. D. prices of related goods, technology, prices of inputs, expectations, and the number of sellers.

Economics