The government in a competitive market
economy enacts a subsidy to pay farmers for producing
milk. Evaluating this policy using the idea of economic
efficiency would lead one to conclude that the policy
undesirable because it would change
the distribution of income.
undesirable because it would encourage
too much milk production relative to other
desirable because it would help
consumers through lower milk prices without hurting
desirable because it would help both
consumers through lower milk prices and producers
through higher profits.