A government gives a subsidy for a product whose demand is perfectly price inelastic. Why are producers unable to gain from this subsidy?
- AThe subsidy causes a large reduction in the price of the product, as its price elasticity of demand is infinite.
- BThe subsidy causes a large reduction in the price of the product, as its price elasticity of demand is zero.
- CThe subsidy causes a small reduction in the price of the product, as its price elasticity of demand is relatively elastic.
- DThe subsidy causes a small reduction in the price of the product, as its price elasticity of demand is relatively inelastic.