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The tutorial explains how to draw a detailed diagram showing the effect of a subsidy on the market. Start by drawing the demand and supply curve to find the initial equilibrium point. With the subsidy, the supply curve shifts down, leading to a new equilibrium with lower price and higher quantity. It's important to show the cost of the subsidy, consumer savings, producer revenue, and welfare effects in the diagram. This helps understand the impact of the subsidy on the market.