Summarize the effects of a subsidy on the market price and the ...

[Lisaclaire]

Summarize the effects of a subsidy on the market price and the quantity produced.
 
  What will be an ideal response?

Question 2

A(n) ________ is represented by a leftward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve.
 
  A) increase in demand; decrease in quantity demanded
  B) decrease in demand; increase in demand
  C) decrease in demand; increase in quantity demanded
  D) decrease in quantity demanded; decrease in demand

[polinasid]

Answer to Question 1

A subsidy increases the price received by sellers, shifts the supply curve rightward, and places a wedge between the marginal social benefit and marginal social cost of producing the good. The subsidy creates a deadweight loss, a higher equilibrium quantity sold, over-production, and a lower price paid by the consumers. The subsidy increases farm revenues to all farmers.

Answer to Question 2

C