If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's ________ curve will shift down and the industry ________ curve will shift to the right.
A) marginal cost; demand
B) marginal cost; supply
C) marginal benefit; demand
D) marginal benefit; supply

Question

Quizplus · Accepted Answer

When a subsidy is granted to firms, it effectively lowers their costs of production. This is reflected in a downward shift of the marginal cost curve for the firm, as it becomes cheaper for them to produce each additional unit. For the industry as a whole, this translates into an increased ability to supply goods at any given price, hence the industry supply curve shifts to the right.

If a Subsidy Is Granted to Perfectly Competitive Firms That