Subsidy to Corn Growers
The question
The market for corn in the country of Vensfeld is initially in equilibrium. The government of Vensfeld begins paying corn growers a subsidy of a fixed amount for every bushel of corn they produce. Show the effect of this subsidy on the market for corn, assuming all else is held constant. Show the effect on the Supply and Demand graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Subsidy to Corn Growers: the worked answer
On the Supply and Demand graph, Supply shifts right.
Why Supply shifts right
A per-unit subsidy paid to producers lowers the effective cost of supplying each bushel, which is a determinant of supply. At every price, growers are now willing and able to offer more corn, so the supply curve shifts to the right. Buyers' willingness and ability to purchase corn at each price are unchanged, so the demand curve stays put.
What happens to the equilibrium
The equilibrium price of corn falls and the equilibrium quantity increases.
The mistake students make on this one
Students often shift demand right, reasoning that government money entering the market means more buying. The payment goes to growers per bushel produced, so it changes sellers' costs only; household incomes and tastes for corn are untouched, so demand cannot move.
On exam day
Draw a per-unit subsidy as the exact mirror of a per-unit tax: the same curve moves, in the opposite direction, by a vertical distance equal to the subsidy per unit.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when Supply shifts right and every other curve on the Supply and Demand graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
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