Question

The government passes a law that allows a substantial subsidy for every acre of land used to grow tobacco. How does this program affect the​ long-run supply curve for​ tobacco? The​ long-run supply curve for tobacco will A. shift to the right because the price of tobacco will increase. B. shift down because . C. shift because tobacco production will become profitable. D. not change because the minimum​ long-run average cost of production will not change. E. become instead of horizontal because the costs of inputs will change.

Answer 1

Answer: C. shift right/ out because tobacco production will become profitable.

Explanation:

Subsidies reduce the cost of using something because the government would sponsor it. The cost of farming tobacco will therefore reduce in this instance. Tobacco companies will therefore incur less cost to acquire tobacco and so will start making more profit.

This will encourage other firms to come into the tobacco market as time goes on. As more firms enter, there will be a larger supply of tobacco. The supply curve will then shift right to depict this.