Suppose that demand for solar panels is generally less elastic than the supply of solar panels. Which group(s) benefit(s) most from a government subsidy on the purchase of solar panels? (Note: You do not need to consider any externalities associated with solar energy production.)

A. Producers of solar panels
B. Consumers of solar panels
C. Consumers and producers of solar panels
D. The government and taxpayers
E. All groups benefit equally.

In a case where demand for solar panels is less elastic than the supply, a government subsidy primarily benefits producers, although consumers also gain some benefit.

Explanation:

When demand is less elastic than supply, a government subsidy on the purchase of solar panels would ultimately benefit producers more than consumers. That's because less elastic demand means that consumers are not highly responsive to the price changes. In this case, producers can pass a good part of the subsidy on to consumers in the form of higher prices, and thus capture most of the benefits. However, consumers will also gain some benefit from the lowered net price of solar panels due to the subsidy.

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