Subsidy spending minimized with inelastic demand and supply Steps:

• Government subsidy spending = $2 × new equilibrium quantity (Q_new).
• Q_new = initial Q (1000) + ΔQ, where ΔQ > 0 after subsidy shifts supply right.
• ΔQ/Q = ($2/$10) × (ε_d × ε_s)/(ε_d + ε_s), with ε_d = |price elasticity of demand|, ε_s = price elasticity of supply.
• Minimize ΔQ by minimizing (ε_d × ε_s)/(ε_d + ε_s), which is smallest when both elasticities <1 (inelastic).

Why B is correct:

• Both inelastic curves limit quantity response to subsidy: formula (ε_d × ε_s)/(ε_d + ε_s) yields smallest value (e.g., 0.5×0.5/1=0.25), minimizing ΔQ and thus spending.

Why the others are wrong:

• A: Inelastic demand but elastic supply increases pass-through to consumers, raising ΔQ (0.5×2/2.5=0.4) and spending.
• C: Both elastic maximizes response (2×2/4=1), largest ΔQ and spending.
• D: Elastic demand with inelastic supply boosts ΔQ (2×0.5/2.5=0.4) via high demand sensitivity.

Final answer: B