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.

Question

Quizplus · Accepted Answer

A government subsidy paid to a firm reduces production costs, encouraging the firm to supply more of the good, which can lead to an increase in the equilibrium quantity. It does not directly increase demand or leave supply unchanged.

A Government Subsidy Paid to a Firm I