Subsidies Increase Supply and Lower Prices

Steps:

• Subsidy reduces producers' costs, making it cheaper to produce the good.
• Lower costs mean more supply at every price level, shifting the supply curve right.
• Rightward supply shift intersects demand curve at a lower equilibrium price.
• Equilibrium quantity rises due to the increased supply.

Why D is correct:

• Subsidies lower marginal production costs, shifting supply right per the law of supply, resulting in lower price and higher quantity.

Why the others are wrong:

• A: Demand curve unchanged; equilibrium quantity rises, not falls.
• B: Supply shifts right, not left; equilibrium quantity rises.
• C: Demand curve unchanged; equilibrium quantity rises, not falls.

Final answer: D