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