How does a $20 dollar subsidy effect the supply curve of Oil per barrel? Represent graphically,...

How does a $20 dollar subsidy effect the supply curve of Oil per barrel? Represent graphically, plot against the demand curve and explain.

Expert Solution

After getting subsidy producer will want to supply more so due to this supply curve shifts downward. The magnitude of shift is equal to amount of subsidy given which is $20 dollars in this question. So due to demand curve equilibrium prices are lower than before and quantity has increased. So overall consumers are now paying lower price than before and supplier is now selling more. And lower price to supplier is compensating by subsidy.

Rahul Sunny answered 1 year ago

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