Figure: Demand and Supply with Subsidy Reference: Ref 6-10 (Figure: Supply and Demand with Subsidy) Refer to the figure. Suppose a subsidy allows sellers to receive their product at the price of $8 with a quantity of 400 units. What is the dollar amount of the subsidy per unit of the good?
A) $1
B) $6
C) $2
D) $100

Question

Figure: Demand and Supply with Subsidy  Reference: Ref 6-10 (Figure: Supply and Demand with Subsidy) Refer to the figure. Suppose a subsidy allows sellers to receive their product at the price of $8 with a quantity of 400 units. What is the dollar amount of the subsidy per unit of the good?
A) $1 
B) $6 
C) $2 
D) $100

Quizplus · Accepted Answer

The new supply curve with the subsidy is S2. At the quantity of 400 units, the price that sellers receive (P2) is $8. The original supply curve without the subsidy is S1, and at the quantity of 400 units, the price (P1) would have been $10. Therefore, the subsidy per unit of the good is $10 - $8 = $2. Thus, the correct answer is C.