Supply: Q S = 20 P – 100
Where Q is Quantity measured in tons, and P is the Price in $ per ton.
The Government decides to provide producers with a subsidy of $4 per ton.
The competitive model predicts that, as a result of the subsidy, the equilibrium marke t price will fall by:
A. $0.80 per ton
B. $1.20 per ton
C. $1.60 per ton
D. $8.00 per ton
Explain your answer.
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