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When a subsidy is introduced in a market, the cost of producing an item decreases because the government provides financial assistance. The supply curve shifts downward by the amount of the subsidy, leading to an increase in supply. Each point on the supply curve is moved downward by the subsidy amount, resulting in a lower cost of production for manufacturers. For example, a $4 subsidy would shift the supply curve downward by $4, impacting production costs and supply levels in the market.
