In this case, the government provides kerosene suppliers with asubsidy of 20 cen

Question

In this case, the government provides kerosene suppliers with asubsidy of 20 cents per liter. The subsidy shifts the supply curvedownward by 20 cents, from S1 to S2. With the government subsidy,kerosene suppliers are willing to sell a greater quantity ofkerosene at any given price.

We can examine the effects of asubsidy with a simple supply and demand model. Suppose the graphbelow shows the market for kerosene in Indonesia. The line labeledS1 represents the supply of kerosene in the absence of governmentsubsidies. The line labeled S2 represents the supply of kerosenewhen the government provides a subsidy to kerosene suppliers.

In this case, the government provides kerosene suppliers with asubsidy of 20 cents per liter. The subsidy shifts the supply curvedownward by 20 cents, from S1 to S2. With the government subsidy,kerosene suppliers are willing to sell a greater quantity ofkerosene at any given price.

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