February/March 2026 Paper 12

2026 · 30 questions · 30 parts · 30 marks

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9Indirect Taxes SubsidiesMedium1 mark
A government gives farmers a subsidy of $5 per kilo to supply food on the open market, where X is the original equilibrium position. The effect is illustrated in the diagram shown.
supply and demand diagram for food, price ($ per kilo) on the vertical axis marked 0, 3, 8, 13 and 18 and quantity ('000 kilos) on the horizontal axis marked 5, 10, 15, 20 and 25, with one curved downward-sloping demand curve D1 and three upward-sloping supply curves S1, S2 and S3; X is the original equilibrium where S1 meets D1, at a price of 13 and a quantity of 20; S2 lies to the right of S1 and meets D1 at a price of about 11 and a quantity of 25; S3 lies to the left and above S1 and meets D1 at a price of 18 and a quantity of 10; dashed guide lines run from these points to the axes
What will be the new equilibrium price and quantity supplied as a result of the subsidy?
equilibrium price ($ per kilo)quantity supplied (’000 kilos)
A820
B1125
C1320
D1810