Due to subsidies, the supply curve shifts to the right to new supply curve that intersect with the demand at new equilibrium point E' corresponding to which equilibrium price decreases and equilibrium quantity increases. Question 3 Explain the effect of the subsidy on the market forces and the equilibrium point. Describe THREE (3) other changes that could have the same effect on market supply of gasoline as the imposition of the subsidy in (B) above.
In the free
Demand is the want of consumer backed by the
Supply is the quantity seller is willing to sell in the market at the given price level. The supply curve is upward sloping due to positive relationship between the price and quantity supplied, other things being constant.
From the given data, plot the demand and supply on graph representing quantity on the horizontal axis and the price on the vertical axis as shown in figure below:
The downward sloping demand curve intersects the upward sloping supply curve at point E corresponding to which price is $5 and quantity is 12 units.
b. Subsidies is the negative tax, that is, it is given by the government to the citizens in exchange of production or consumption.
The subsidy on production reduces the cost of production due to which the supply curve shifts to right as shown in the figure below:
Due to subsidies, the supply curve shifts to the right to new supply curve that intersect with the demand at new equilibrium point E' corresponding to which
Question 3
- Explain the effect of the subsidy on the market forces and the equilibrium point.
- Describe THREE (3) other changes that could have the same effect on market supply of gasoline as the imposition of the subsidy in (B) above.
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