What is the effect of a subsidy?

Which of the following is the most likely effect of a subsidy in the market for corn? A) The equilibrium quantity of corn will decrease. B) The equilibrium price paid by buyers will increase. C) Marginal costs will be less than marginal benefit. D) The supply curve for corn will shift downward.


you’re right, it’s D

subsidy reduces production… D should be it - Dinesh S

subsidy reduces production. How ?

supply curve is upward sloping. if it shifts downwards, for a given price, more quantity is produced (draw it out) subsidy doesn’t reduce production, it reduces price and increases quantity. the best way to see this is to draw supply and demand curves, and shift supply curve downwards and compare to the previous equilibrium.

OK I see it perfectly thank you cielito


dinesh.sundrani Wrote: ------------------------------------------------------- > subsidy reduces production… D should be it > > - Dinesh S oooops sorry … subsidy increases production, it’s toooo late for me.