Question

To ensure that as many individuals as possible use helmets, the government recently decided to subsidize the production of helmets.
Which of the following will happen as a result of this subsidy? Choose one or more:

A. The demand curve for helmets will increase.
B. The demand curve for helmets will remain the same.
C. The demand curve for helmets will shift to the left.
D. The supply curve for helmets will shift to the left.
E. The supply curve for helmets will shift to the right.

Answer 1

Answer: B & E

Explanation:

If a subsidy is provided for the production of helmets, the demand curve is unaffected, but the supply curve shifts to the right.  A production subsidy encourages production because it reduces costs for the producer. However, it will not affect market demand.