Question

The government offers subsidies to homeowners for the purchase and installation of solar energy generating equipment....

The government offers subsidies to homeowners for the purchase and installation of solar energy generating equipment. Given that silicon (derived from silicate minerals) is the main input in the production of solar panels, how will the subsidy affect the market for silicon?
Demand will rise, leading to an increase in the equilibrium price and quantity of silicon.
Supply will rise, leading to an increase in the equilibrium quantity and decrease in price.
Demand will fall, leading to a decrease in the equilibrium price and quantity.
Supply will fall, leading to an increase in the equilibrium price and decrease in the quantity.
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Answer #1

This is an situation when government is trying to encourage consumption of the solar power generating equipments, by providing subsidies.

Impact on Consumers:-

The demand for the product will increase, due to subsidies the price will be lowered down.

Impact on Producers:-

As we know that this solar equipments are made of silicon, as the demand for the equipments will rise, the demand of silicon will also rise, this will lead to increase in the equilibrium price and quantity of the silicon as per the law of demand, this rise in the prices are absorbed by the government in the form of subsidies and hence will not be reflected on the final product.

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