Answer to Question #256807 in Microeconomics for Shy

Question

Suppose that after weeks of widespread flooding, the government decides to provide subsidy to the producers of bottled water. Predict the effect on the market for bottled water.

Answer 1

Solution:

When government subsidies are implemented for bottled water producers, they will be able to produce more bottled water. This increases the market's overall supply of bottled water, which raises the quantity demanded for bottled water and, as a result, lowers its overall price.