In a competitive market, how does a per-unit subsidy paid to producers affect the supply curve?

• A. It shifts the demand curve to the right because producers can charge lower prices.
• B. It shifts the supply curve to the left (upward) by the amount of the subsidy at each quantity.
• C. It causes a movement along the existing supply curve because the subsidy changes quantity supplied but not supply.
• D. It shifts the supply curve to the right (downward) by the amount of the subsidy at each quantity.

Answer: (D)

Verified step by step guidance

1. Understand that a per-unit subsidy to producers effectively lowers their cost of producing each unit of the good.
2. Recall that the supply curve represents the relationship between price and quantity supplied, holding other factors constant.
3. Recognize that when production costs decrease due to a subsidy, producers are willing to supply the same quantity at a lower price, or more quantity at the same price.
4. This change causes the entire supply curve to shift to the right (downward), reflecting an increase in supply at every price level by the amount of the subsidy.
5. Note that this is different from a movement along the supply curve, which occurs only when the price changes without a change in production costs or other supply determinants.