ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A government gives a per-unit subsidy to producers of solar panels. What is the effect on the market, all else equal?
The supply curve shifts to the right. The subsidy lowers producers' costs, so more is supplied at each price, which reduces the equilibrium price and increases the quantity traded. A leftward shift in supply would instead result from higher costs or a tax on producers.
- ASupply curve shifts right, lowering the market price and raising quantity tradedCorrect
- BDemand curve shifts left, lowering the market price and quantity traded
- CSupply curve shifts left, raising the market price
Explanation
A per-unit subsidy reduces producers' costs, so they supply more at every price and the supply curve shifts right. With demand unchanged, the equilibrium price falls and the quantity traded rises. A leftward supply shift would reflect a cost increase or a tax.
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