A subsidy is given to the producers of a good with perfectly elastic demand.
What will be the outcome?
1 )
Consumer and producer receive equal amounts of subsidy.
There will be no change in price; the incidence of the subsidy will fall on the producer.
3 )
There will be a large increase in quantity consumed; the incidence of the subsidy will fall on the consumer.
4 )
There will be no change in the quantity consumed; the incidence of the subsidy will fall on the consumer.
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