Question

Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the market for solar panels if the government offers tax breaks to encourage manufacturers to produce more solar panels?

Show graphically the shift. Clearly label everything, properly show the shift, the original equilibrium and the new equilibrium.

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Answer 1

There is a market for solar panels in which the equilibrium price is P and the equilibrium quantity is Q. Government offers tax breaks to encourage manufacturers to produce more solar panels. This is a likely to reduce the cost of production and the manufacturers of solar panel will now be able to produce more units with the same cost of production. This increases the supply of solar panels. The supply curve will shift to the right from S to S'. The price will decrease and the quantity will increase so that the new equilibrium has a lower price of P1 and a higher quantity of Q1.