Graphically, the effect of a government subsidy on a good is shown as
A) a leftward shift of the market demand curve.
B) a rightward shift of the market demand curve.
C) a downward movement along the market demand curve.
D) no change to the market demand curve.

Question

Quizplus · Accepted Answer

A government subsidy increases the supply of the good, which results in a rightward shift of the supply curve, leading to a lower equilibrium price and an increase in the equilibrium quantity demanded. Therefore, the effect of a government subsidy on the market is shown as a rightward shift of the market demand curve.

Graphically, the Effect of a Government Subsidy on a Good