May/June 2026 Paper 12

2026 · 30 questions · 30 parts · 30 marks

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13Indirect Taxes SubsidiesMedium1 mark

The diagram shows the impact of a government subsidy on the provision of a merit good. S is the original supply curve and

S_{1}

is the supply curve with the subsidy.

a supply and demand diagram for a merit good, price in dollars on the vertical axis (marked 0, 70, 80, 90 and 100) and quantity on the horizontal axis (marked 0, 20 and 40): the original supply curve S and demand curve D cross at price 90, quantity 20; the supply curve with the subsidy, S$_{1}$, crosses D at price 80, quantity 40; dashed guide lines connect both crossing points, and the quantity-40 line, to these axis values

What is the total cost of the subsidy?