May/June 2026 Paper 11

2026 · 30 questions · 30 parts · 30 marks

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13Indirect Taxes SubsidiesHard1 mark
The diagram shows the market for bus services before and after a government subsidy.
The market for bus services before and after a government subsidy, price on the vertical axis and number of bus journeys on the horizontal axis. A downward-sloping demand curve, and two upward-sloping supply curves, 'supply before subsidy' (further left/up) and 'supply after subsidy' (further right/down). Three price levels are marked P₃ above P₁ above P₂, and two quantities Q₁ left of Q₂, with dashed lines forming a grid. H, at (Q₁, P₁), is the original equilibrium where demand crosses 'supply before subsidy'. K, at (Q₂, P₂), is the new equilibrium where demand crosses 'supply after subsidy'. L, at (Q₂, P₃), is where 'supply before subsidy' passes at quantity Q₂. G, at (Q₁, P₃), I, at (Q₁, P₂), and J, at (Q₂, P₁), are the remaining grid points formed by the dashed lines and are not on either curve.
Which area on the diagram shows the incidence of the subsidy for the consumer?