We can examine the effects of a subsidy with a simple supply and demand model. Suppose the graph below shows the market for kerosene in Indonesia. The line labeled S1 represents the supply of kerosene in the absence of government subsidies. The line labeled S2 represents the supply of kerosene when the government provides a subsidy to kerosene suppliers.
Attachment:- Transtutors002_37875-Economics question 4.2.doc