Figure Subsidy Wedge With a $4 subsidy in the figure, buyers pay _____ and sellers receive _____.

Question

Figure Subsidy Wedge  With a $4 subsidy in the figure, buyers pay _____ and sellers receive _____.

Quizplus · Accepted Answer

With a subsidy, the price for buyers decreases and the price for sellers increases. The subsidy shifts the supply curve down by the amount of the subsidy ($4) which creates a new equilibrium price and quantity. In this case, the equilibrium price decreases from $7 to $3, and the equilibrium quantity increases from 5 to 7. At the new equilibrium, buyers pay $3 and sellers receive $7. Therefore, the correct answer is D, which states that buyers pay $3 (which is the new equilibrium price) and sellers receive $7 (which is the price they receive after the subsidy is applied).

Figure Subsidy Wedge with a $4 Subsidy in the Figure