Which panel of Figure 3.3 represents the changes in the market for cigarettes when the government increases subsidies for the production of tobacco and at the same time bans smoking in public buildings? Figure 3.3 Shifts of Supply and Demand

A) A
B) B.
C) C.
D)D.

Question

Which panel of Figure 3.3 represents the changes in the market for cigarettes when the government increases subsidies for the production of tobacco and at the same time bans smoking in public buildings? Figure 3.3 Shifts of Supply and Demand
 
A) A 
B) B. 
C) C. 
D)D.

Quizplus · Accepted Answer

The increase in subsidies for the production of tobacco will shift the supply curve to the right (panel B), leading to an increase in the quantity supplied and a decrease in the price. However, the ban on smoking in public buildings will shift the demand curve to the left (panel A), leading to a decrease in the quantity demanded and a decrease in the price. The net effect of these two policies will be a decrease in the price (which is common to both panels B and D) and a decrease in the quantity exchanged (which is represented only in panel B). Therefore, panel B represents the changes in the market for cigarettes when the government increases subsidies for the production of tobacco and at the same time bans smoking in public buildings.

Which Panel of Figure 3