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What would happen to the price and quantity of a good if the government imposed a subsidy?

This would be a perfect opportunity to use a diagram to demonstrate how with the imposition of a subsidy, the supply curve will shift to the right to show the fact that more firms can now sell the product once the government has provided them with a subsidy to lower the cost of production for these firms. In this event, and it will be a lot easier to show with the help of a diagram, the price of the good in the market would fall to another equilibrium demonstrating the fact that more firms are in the market pushing the price down and the amount of the good sold would increase due to the fact that the new lower price means more consumers can afford the good. Therefore, to summarise, with the imposition of a subsidy, the price of the given good falls and the quantity consumed increases.



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