Internalising a positive production externality through a government subsidy will cause the industry's supply curve to:
A)remain unchanged
B)shift down by an amount less than the subsidy
C)shift down by an amount equal to the subsidy
D)shift down by an amount greater than the subsidy

Question

Quizplus · Accepted Answer

Government subsidy will help the industry to produce at a lower cost, therefore, increase in supply. The supply curve will shift down by an amount equal to the subsidy. This is because the subsidy will offset the cost of production and enable producers to supply more at the same price.

Internalising a Positive Production Externality Through a Government Subsidy Will