A government introduces a subsidy on solar panels to encourage their installation in homes.

Which of the following correctly describes the effect of the subsidy on the market for solar panels?

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Question

A government introduces a subsidy on solar panels to encourage their installation in homes.

Which of the following correctly describes the effect of the subsidy on the market for solar panels?

Accepted Answer

The supply curve shifts to the right and price falls — Award 1 mark for identifying that a subsidy to producers shifts the supply curve to the right, reducing equilibrium price and increasing quantity. A is incorrect — a subsidy affects supply, not demand directly. B is incorrect — subsidies shift supply rightward, not leftward. D is incorrect — this describes a decrease in demand, not a subsidy effect.

Answer

The supply curve shifts to the right and price falls

Answer

The demand curve shifts to the right and price falls

Answer

The demand curve shifts to the left and quantity falls

Answer

The supply curve shifts to the left and price rises

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