Subsidy Reduction Shifts Supply Curve Leftward

Steps:

• Subsidies on fossil fuels lower producers' costs, shifting supply rightward; reducing them raises costs.
• This causes the supply curve to shift left (upward).
• The new supply intersects the unchanged demand curve at a higher price and lower quantity.
• The diagram labels this new equilibrium as point B.

Why B is correct:

• Per supply-demand law, a leftward supply shift raises equilibrium price and lowers quantity, matching point B's position.

Why the others are wrong:

• A: Shows lower price/higher quantity, implying increased supply, opposite of subsidy cut.
• C: Indicates same price/higher quantity, suggesting demand increase, not supply shift.
• D: Depicts higher price/same quantity, ignoring quantity reduction from costlier supply.

Final answer: B