The Following Graph Shows the Domestic Supply and Demand Curves

question 74

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. Which of the following is true once the subsidy is implemented?

• A) The domestic supply curve shifts and the quantity supplied increases to 300 units.
• B) The world price changes to £8 per unit.
• C) The domestic demand remains unchanged at 400 units.
• D) The quantity of imports increases.

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