Suppose that the government provides a subsidy for the consumption of good X. The demand curve with the subsidy will lie to the ______________ of the demand curve without the subsidy, and the equilibrium price of good X will be __________ with the subsidy than without.
A. right; lower
B. left; lower
C. left; higher
D. right; higher
Answer: D. right; higher
The subsidy shifts the demand curve to the right and it increases price and quantity in the new equilibrium where the increased price is paid by subsidy but the price is higher than the earlier equilibrium.
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