Use the following to answer questions: Figure: Supply Shift 2 -(Figure: Supply Shift 2) Refer to the figure. What would cause the supply curve to shift from S₁ to S₂? A) a $20 tax reduction on each unit of output B) a $40 tax reduction on each unit of output C) a $40 subsidy reduction on each unit of output D) a $20 subsidy reduction on each unit of output

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A subsidy reduction would decrease the cost of production for the suppliers, thus increasing their willingness to supply at any given price. This would result in a shift of the supply curve to the right from S₁ to S₂. A $20 subsidy reduction would be more likely to cause this shift than a $40 subsidy reduction or a tax reduction, as a smaller reduction in a subsidy would still have a significant impact on the cost of production for suppliers.

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