Subsidy Shifts Supply to Target Equilibrium Price

Steps:

• Identify quantity demanded at 8 cents/kg (e.g., 100 kg from demand curve).
• Identify quantity supplied at 8 cents/kg without intervention (e.g., 80 kg from supply curve).
• Calculate supply shortfall (20 kg) to reach equilibrium quantity.
• Grant 2 cents/kg subsidy to producers, shifting supply curve rightward to match demand at 8 cents/kg.

Why A is correct:

• Subsidy lowers marginal cost for producers per economic theory, increasing supply at the target price until equilibrium is restored.

Why the others are wrong:

• B: Tax on consumers shifts demand left, raising equilibrium price above 8 cents; "sell 4 cents" is nonsensical.
• C: Consumer tax increases effective price, reducing quantity demanded; fixed sales of 4 tonnes ignores market forces.
• D: Rationing caps quantity but leaves price above equilibrium due to excess demand.

Final answer: A