Refer to the above supply and demand graph.Point A represents the current equilibrium level of output of this product and point B represents the optimal level of output from society's perspective.If government decides to correct this spillover problem by subsidizing producers,then the: A) demand curve will shift from D₁ to D₂. B) supply curve will shift from S₁ to S₂. C) supply curve will shift from S₂ to S₁. D) demand curve will shift from D₂ to D₁.

Question

Quizplus · Accepted Answer

Since the spillover problem is corrected by subsidizing producers, it means that the cost of production decreases for them. As a result, producers would be willing to produce and supply more at each price level. Therefore, the supply curve will shift rightward from S₁ to S₂. This will lead to a new equilibrium at point B, representing the optimal level of output from society's perspective. The demand curve will remain unchanged.

Refer to the Above Supply and Demand Graph