Refer to the provided supply and demand graph. S1 and D1 represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. One way that
The government could shift demand to its socially optimal level is to
A) tax the sellers.
B) tax the buyers.
C) subsidize the sellers.
D) subsidize the buyers.

Question

Refer to the provided supply and demand graph. S1 and D1 represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. One way that
The government could shift demand to its socially optimal level is to
A) tax the sellers. 
B) tax the buyers. 
C) subsidize the sellers. 
D) subsidize the buyers.

Quizplus · Accepted Answer

To shift demand to its socially optimal level, the government would need to increase demand, which can be done by subsidizing the buyers. By reducing the cost of buying the product, the demand will increase, and the market will move towards its socially optimal level where supply and demand intersect.

Refer to the Provided Supply and Demand Graph