Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large. Each individuals demand curve will shift ________, and the market demand curve for the product will shift ________.
A) to the right; to the right
B) to the right; to the left
C) to the left; to the left
D) to the left; to the right

Question

Quizplus · Accepted Answer

When a per-unit subsidy is granted, the effective price of the product decreases for the individual consumer. This results in an increase in their willingness and ability to consume more of the product at every price level. Thus, each individual's demand curve will shift to the right. Since there are external benefits to society at large, the subsidy will induce more individuals to consume the product, resulting in an increase in the overall demand for the product. Hence, the market demand curve will shift to the right as well.

Suppose That a Per-Unit Subsidy Is Granted to Each Individual