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WAEC Economics 2020 Question 7

Question 7

Theory of Supply

Use Figure 3 to answer the question. The curves D0D0 and S0S0 are the initial demand and supply curves respectively. What happens when government provides subsidy to producers?

Diagram for this question
  1. A.The supply curve will shift from S0S0 to S2S2
  2. B.The supply curve will shift from S0S0 to S1S1
  3. C.The demand curve will shift from D0D0 to D1D1
  4. D.The supply curve will shift from S1S1 to S0S0
Show the answer and explanation

Answer: A (The supply curve will shift from S0S0 to S2S2)

Explanation

A subsidy lowers producers' costs, so supply increases: the curve moves right from S0S0 to S2S2.