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When a subsidy is introduced in the market, it lowers the cost of making an item because the government provides money to offset part of the cost. This causes the supply curve to move downward by the amount of the subsidy, effectively increasing supply. Each point on the supply curve is shifted downward by the amount of the subsidy, for example, a point at 100,10 would shift to 100,6 with a $4 subsidy. This results in a decrease in the cost of production and an increase in supply.
