The Following Graph Shows the Domestic Supply and Demand Curves

question 45

Multiple Choice

The following graph shows the domestic supply and demand curves for a good. S1 and S2 represent the domestic industry supply before and after the provision of a subsidy by the government respectively, while D represents the domestic demand for the product. Prior to the subsidy, the country was importing 300 units of the good. Refer to the graph to answer the question. At the world price, the quantity supplied by the domestic industry prior to the subsidy is:

• A) 100 units.
• B) 200 units.
• C) 300 units.
• D) 400 units.

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Definitions:

Contribution Margin

The amount by which the sales revenue of a product exceeds its variable costs, indicating how much contributes towards covering fixed costs and generating profit.

Break-Even Point

The point at which total costs and total revenues are equal, resulting in no net gain or loss for the business.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums, providing stability to a company's expenses.

Variable Costs

Expenses that vary in direct proportion to changes in levels of production or sales activity, such as raw materials and direct labor costs.