Subsidy expenditure maximizes with elastic demand and supply

Steps:

• Subsidy shifts supply curve right, increasing equilibrium quantity and reducing consumer price.
• Government cost equals subsidy per unit times new quantity produced.
• Quantity increase is largest when supply elasticity is high (larger horizontal shift) and demand elasticity is high (greater response to price fall).
• Thus, total expenditure peaks when both elasticities exceed 1.

Why D is correct:

• With both elasticities >1, quantity expands most, maximizing s × Q per economic incidence analysis.

Why the others are wrong:

• A: Inelastic curves limit quantity change, minimizing expenditure.
• B: Elastic demand amplifies response, but inelastic supply restricts shift size.
• C: Elastic supply expands shift, but inelastic demand curbs quantity response.

Final answer: D