Simultaneous tax and subsidy effects on wheat supply

Steps:

• Initial equilibrium at X where demand equals supply.
• Tax on wheat shifts supply curve left (up), raising price and lowering quantity.
• Increasing subsidy rate shifts supply curve right (down), lowering price and raising quantity.
• Net effect: if subsidy dominates tax, new equilibrium at higher quantity and slightly higher or lower price, reaching point D.

Why D is correct:

• D reflects rightward net supply shift per supply-demand equilibrium law, with quantity increase outweighing tax's reduction.

Why the others are wrong:

• A: Shows only tax effect (left shift), ignoring subsidy.
• B: Indicates demand shift, unrelated to policy changes.
• C: Depicts balanced shifts with no net change, but subsidy increases.

Final answer: D