explain the effect of subsidy on the supply of a good . (use diagram)
Answers
Answer:
The effect of a specific per unit subsidy is to shift the supply curve vertically downwards by the amount of the subsidy. In this case the new supply curve will be parallel to the original. Depending on elasticity of demand, the effect is to reduce price and increase output
Concept:
Supply refers to the positive relationship between price and quantity supplied for a product. It is positive sloping and it has a upward sloping curve.
Given:
Explain the effect of subsidy on the supply of a good.
To find:
Explain the effect of subsidy on the supply of a good is to find out.
Solution:
As the subsidy is provided by the government then the supply of production rises in such a manner that the supply increases. It means the price falls and quantity rises into an economy. It can be seen in the diagram as:
