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In: Economics

The government announces a new subsidy for biofuels made from corn: Rightward shift of demand ....

The government announces a new subsidy for biofuels made from corn: Rightward shift of demand .

why?

. The government announces a new subsidy for biofuels made from corn: Rightward shift of supply  Correct.

why?

why they are both correct?

Solutions

Expert Solution

Case 1 - Rightward shift of demand curve when the government imposed subsidy on biofuels made from corn. The rightward shift of the demand curve happens because government subsidy on corn leads to a decrease in the price paid by the consumers for biofuels and an increase in the price(amount) received by the producer for the biofuels made from corn.
The rightward shift of the demand curve or increase in demand from D to D1, due to government subsidy on the biofuels made from corn shown in the below graph:

Case 2 - Rightward shift of supply curve when the government imposed subsidy on biofuels made from corn. The rightward shift of the supply curve happens because government subsidy on corn leads to an increase in the production of corn and a decrease in the price of the biofuels made from corn.
The rightward shift of the supply curve or increase in supply from S to S1, due to government subsidy on the biofuels made from corn shown in the below graph:

Rahul Sunny answered 2 years ago
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