Subsidy Incidence Measures Consumer Price Reduction Benefit

Steps:

• Pre-subsidy equilibrium occurs at price P and quantity where demand meets original supply.
• Subsidy shifts supply curve downward, lowering equilibrium price to P2 and raising quantity.
• Consumer incidence is the benefit from lower price P to P2, across post-subsidy quantity.
• This forms rectangular area between original and new prices, up to new equilibrium quantity.

Why B is correct:

• Area P J P2 equals (P - P2) × post-subsidy quantity, capturing consumers' share of subsidy per economic incidence definition.

Why the others are wrong:

• A: P H P2 shows partial price drop but over wrong quantity segment, understating consumer benefit.
• C: P I G P represents producer surplus gain, not consumer portion.
• D: P K L P depicts deadweight loss or excess burden, unrelated to consumer incidence.

Final answer: B