In a competitive market, what is the typical effect of a per-unit subsidy paid to producers on the market supply curve?

• A. It shifts the supply curve upward (or to the left), decreasing quantity supplied at each price.
• B. It shifts the supply curve downward (or to the right), increasing quantity supplied at each price.
• C. It eliminates the supply curve because producers will supply an unlimited quantity at any price.
• D. It causes movement along the existing supply curve with no shift, because only demand changes.

Answer: (B)

Verified step by step guidance

1. Understand what a per-unit subsidy to producers means: it is a payment from the government to producers for each unit of the good they produce, effectively lowering their production cost per unit.
2. Recall the relationship between production costs and the supply curve: when production costs decrease, producers are willing to supply more at every price level, causing the supply curve to shift.
3. Express this shift graphically: a decrease in production costs due to the subsidy shifts the supply curve downward (or to the right), indicating an increase in quantity supplied at each price.
4. Contrast this with other options: an upward or leftward shift would mean higher costs or less supply, which is not the case here; movement along the curve happens only when price changes, not due to subsidies.
5. Conclude that the per-unit subsidy effectively increases supply by shifting the supply curve downward/rightward, making production more profitable for producers at every price.