Producer Subsidy with Perfectly Elastic Demand

Steps:

• Perfectly elastic demand is a horizontal curve, fixing market price.
• Subsidy to producers shifts supply curve rightward (down by subsidy amount).
• New equilibrium stays at original price due to horizontal demand.
• Quantity supplied and consumed rises sharply as demand absorbs all additional supply at fixed price.

Why B is correct:

• Perfectly elastic demand means price cannot fall, so subsidy boosts quantity consumed greatly; incidence falls entirely on consumers via expanded access, per incidence rule where elastic demand captures full producer subsidy benefit.

Why the others are wrong:

• A: Subsidy does not fall solely on producer; consumers gain through quantity increase.
• C: Quantity consumed rises, not stays the same.
• D: Price stays same but incidence is not shared; consumers capture full benefit.

Final answer: B