Government Subsidy Increases Consumer Surplus

Steps:

• Subsidy reduces producers' costs, shifting supply curve rightward.
• New equilibrium features lower market price and higher quantity.
• Consumers gain from paying less for more units.
• This expands the consumer surplus triangle under the demand curve.

Why A is correct:

• Consumer surplus rises as the price consumers pay decreases below their willingness to pay, per standard surplus definition.

Why the others are wrong:

• B: Subsidy share of producer income depends on supply/demand elasticities; not guaranteed over half.
• C: Total expenditure may fall if price drop outweighs quantity increase, based on price elasticity of demand.
• D: Subsidy equals half producer income only in specific equal-elasticity cases, not generally.

Final answer: A