Asked by Lawrence Woods on Jul 12, 2024
Verified
If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's ________ curve will shift down and the industry ________ curve will shift to the right.
A) marginal cost; demand
B) marginal cost; supply
C) marginal benefit; demand
D) marginal benefit; supply
Marginal Cost
The amount spent to produce a further unit of a good or service.
Industry Curve
Refers to the graphical representation of the supply and demand equilibrium of an entire industry.
- Examine the contribution of taxes, subsidies, and state intervention towards addressing the external costs and benefits in the realm of production.
Verified Answer
MH
Melissa HenriquezJul 14, 2024
Final Answer :
B
Explanation :
When a subsidy is granted to firms, it effectively lowers their costs of production. This is reflected in a downward shift of the marginal cost curve for the firm, as it becomes cheaper for them to produce each additional unit. For the industry as a whole, this translates into an increased ability to supply goods at any given price, hence the industry supply curve shifts to the right.
Learning Objectives
- Examine the contribution of taxes, subsidies, and state intervention towards addressing the external costs and benefits in the realm of production.
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