Government subsidy expenditure in supply-demand graph

Steps:

• Locate pre-subsidy equilibrium at price OP and quantity OQ.
• Subsidy shifts supply curve down by amount PJ, creating new equilibrium at price OF for consumers and OP for producers.
• Subsidy per unit is vertical distance PJ.
• Total government spending is area of rectangle formed by subsidy per unit times quantity produced, which is PLJ.

Why D is correct:

• PLJ is the rectangular area equaling subsidy per unit (PJ) multiplied by quantity (OJ), per economic definition of total subsidy cost.

Why the others are wrong:

• A (OPJQ): Represents consumer surplus gain, not government cost.
• B (OPF): Shows price reduction to consumers, excluding full subsidy area.
• C (PJF): Captures only partial subsidy wedge, ignoring quantity dimension.

Final answer: D