In the context of subsidies, which of the following best describes the concept of 'incidence of subsidy'?

• A. The percentage of uptime in a production process due to subsidies
• B. The proportion of the subsidy benefit received by consumers versus producers
• C. The rate at which a subsidy increases production efficiency
• D. The percentage of government spending allocated to subsidies

Answer: (B)

Verified step by step guidance

1. Understand that the 'incidence of subsidy' refers to how the benefits of a subsidy are distributed between different economic agents, typically consumers and producers.
2. Recall that a subsidy is a payment made by the government to reduce the cost of producing or purchasing a good, which can affect prices and quantities in the market.
3. Recognize that the incidence of subsidy measures the proportion of the subsidy that actually benefits consumers (through lower prices) versus producers (through higher revenues).
4. Note that this concept is similar to tax incidence but in reverse, focusing on who gains from the subsidy rather than who bears the tax burden.
5. Therefore, the correct description of 'incidence of subsidy' is the proportion of the subsidy benefit received by consumers versus producers.