Question

Draw the demand and supply curves for product x. Now, assume the government decides to give producers a subsidy of $1 for each unit produced. Show that on your demand and supply curve and explain.

Answer 1

Answer;

In the above figure, x-axis shows quantity and y-axis shows price . D is the demand curve S is the supply curve. E is the initial equilibrium point. If government decides to give producers a subsidy of $1 for each unit produced, an industry is able to allow its producers to produce more goods, the supply increases, the supply curve shift to the right. The equilibrium changes from E to E1. The price decreases from p to p1 and quantity increases from q to q1.