Tobacco production is one of the more heavily subsidized industries in the United States.Suppose that as a result of intense lobbying from health-related concerns,Congress repeals the tobacco firms' subsidies.Which of the following scenarios would likely occur?
A)The tobacco firms' supply curve would shift rightward,as it would now be cheaper to produce each level of output.
B)The tobacco firms' supply curve would shift leftward,since it would now cost more to produce each level of output.
C)The tobacco firms would not experience any shift in their supply curves;subsidies don't affect output.
D)There would be a movement along the supply curve for tobacco,but the supply curve would not shift.

Question

Quizplus · Accepted Answer

When subsidies are removed, the cost of production for tobacco firms will increase, causing a leftward shift in their supply curve as they will be willing to supply less tobacco at any given price. This is because their marginal cost curve will shift upwards due to the removal of subsidies, reducing their ability to produce at every price level.

Tobacco Production Is One of the More Heavily Subsidized Industries