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Effect of consumer subsidy on demand and supply curves

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Discuss the effect of consumer subsidies on the demand and supply curves of a product.

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Solution Summary

The solution describes the effect of consumer subsidy on demand and supply curves of a product. Answer is written in about 250 words and is explained with the help of suitable graphs.

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Solution:

Let us consider the situation, where DD is demand curve and SS is supply curve. M represents the equilibrium point. P is the equilibrium price and Q is equilibrium quantity.
A subsidy on consumers will shift the demand curve to the right as consumers will be buying more because they are effectively paying less. Demand curve will shift ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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