Answer to Question #109847 in Microeconomics for Jay Mehta

Question

Can’t a subsidy also serve to reduce inefficiency resulting in less deadweight loss?

Answer 1

No, the deadweight loss due to a subsidy is a form of economic inefficiency. It's areduction in consumer and producer surplus, and is a result of the fact that thesubsidy causes more than the socially best amount of the good is produced. And what is produced is sold at too low a price