A government subsidy paid to a firm
i.increases the demand for the good.
ii.has no effect on the supply of the good.
iii.leads to an increase in the equilibrium quantity.
A) i only
B) i and ii
C) ii only
D) iii only
E) i and iii

Question

Quizplus · Accepted Answer

A government subsidy paid to a firm typically lowers the cost of production, which increases the supply of the good. This shift in supply, not demand, leads to an increase in the equilibrium quantity. The subsidy does not directly affect consumer demand for the good.

A Government Subsidy Paid to a Firm