Answer to Question #29237 in Microeconomics for Mariana

Question

Suppose that demand is downward sloping and supply upward sloping. Subsidies cause dead weight loss despite the fact that:
1)consumer surplus increases.
2)total surplus increases.
3)producer surplus increases.

I know the number one is correct but could the combination of number one and 2 still be correct in this case!?

Answer 1

In this case consumer surplus will increase and producer surplus decrease.
Total surplus may also increase, but this is not important and significant in this case, as the main fact is that even the consumer surplus increase, the deadweight loss will appear, and it is the negative side of the subsidies to producers.