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Now, let's explore the effects of a subsidy in a market. A subsidy is essentially the opposite of a tax. It means the government gives money to producers for making an item. In this case, if there is a $4 subsidy, the supply curve shifts downward by that amount. This decrease in production cost impacts the supply curve, making it less expensive to produce the item. Essentially, each point on the curve will move downward by $4. This results in an increase in supply as the curve expands physically to the right.
