Question

Tobacco production is one of the more heavily subsidized industries in the United States. Suppose that as a result of intense lobbying from health-related concerns, Congress repeals the tobacco firms subsidies. Which of the following scenarios would likely occur?
a. The tobacco firms supply curve would shift leftward, since it would now cost more to produce each level of output.
b. There would be a movement along the supply curve for tobacco, but the supply curve would not shift.
c. The tobacco firms supply curve would shift rightward, as it would now be cheaper to produce each level of output.
d. The tobacco firms would not experience any shift in their supply curves; subsidies dont affect output.

Answer 1

Answer:

Option (a) is correct.

Explanation:

When the government of United states provide subsidy to the Tobacco industries then there is a rise in the production of Tobacco because it will become cheaper for the firms to produce tobacco.

But these firms are not taking the proper steps for health related issues and even lobbying from health-related concerns.

If the congress repeals the tobacco firms subsidies then the cost of tobacco production increases because of the withdrawal of subsidies. Hence, the supply of tobacco decreases because of the lower level of output and therefore, this would shift the supply curve of tobacco firms leftwards.

This is only because of the higher cost of production.