Question

How do subsidies generally affect the supply curve? Why?

Answer 1

Effects of Supply Subsidies. When the government provides a supply-side subsidy to the producers of a product, the supply curve shifts to the right and the demand curve remains the same. Because they are being subsidized, producers are encouraged to produce more of a product and are able to do so for less.

Answer 2

Effects of Supply Subsidies. When the government provides a supply-side subsidy to the producers of a product, the supply curve shifts to the right and the demand curve remains the same. Because they are being subsidized, producers are encouraged to produce more of a product and are able to do so for less.

he effect of a specific per unit subsidy is to shift the supply curve vertically downwards by the amount of the subsidy. In this case the new supply curve will be parallel to the original. Depending on elasticity of demand, the effect is to reduce price and increase output.