If the government were to increase subsidies to suppliers th

If the government were to increase subsidies to suppliers the equilibrium price would increase a. True b. False oe?

Solution

False: An increase in the subsidies will reduce the cost of production and therefore the the firms will lower the price for the product. Actually the subsidies are intended to reduce the price for the commodities, on the other hand an increase in the taxes will increase the price of the products. This is becuase some part of the tax burden is added into the price.