French Farmers Fret Over Subsidies In Post-Brexit EU Budget Talks

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?

Question content area bottom

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