Reference no: EM133280226
French dairy and crop farmer? Jean-Claude Pette relies on European Union subsidies to keep his? 200-hectare farm afloat.? "Unfortunately, if you look at the prices we sell our produce for? today, we need those subsidies to? survive," says Pette.
?Source:
National
Post?,
February? 18, 2020
Explain how a subsidy paid to dairy farmers affects the consumer surplus and the producer surplus from milk. Does the subsidy make the milk market more efficient or less? efficient?
Part 1
A subsidy paid to dairy farmers? _______ consumer surplus because? _______.
A. ?decreases; farmers produce more milk but consumers must pay a higher price
B. ?increases; the quantity of milk purchased by consumers increases and the price falls
C. ?decreases; consumers pay the subsidy to farmers
D. ?increases; producer surplus? decreases, and total surplus remains the same
Part 2
A subsidy paid to dairy farmers? _______ producer surplus because? _______.
A. ?increases; farmers produce more milk
B. ?decreases; farmers produce more milk but consumers pay a lower price
C. ?increases; cost falls by the amount of the subsidy but price falls by less than the subsidy and quantity produced increases
D. ?decreases; consumer surplus increases but total surplus remains the same
Part 3
A subsidy makes the milk market? _________ efficient because? _______.
A. ?less; government intervention always leads to inefficiency
B. ?equally; consumers pay a lower price and farmers increase production
C. ?more; consumer surplus and producer surplus both increase